Prop trading - a golden mine for those, who love scams

A typical working day, your phone rings – you see an unfamiliar number. “Hello! I represent a financial company XXX …”- you open your mouth to say what you think of him as usual in the case of proposals from unknown companies, but then he says, “you will be given a $10,000 capital for trading.”

That’s it. You’re on the hook. You listen to this “Basilio The Cat” very carefully and understand that success is near. Finally, at least someone understood your whole potential and is willing to give you millions to manage. Your time has come!

But, what actually lies behind the proposal of this “generous uncle”? Now there are a lot of firms that promote so-called “Prop trading” in the forex market. Today, we look at the standard fraudulent schemes that are used by these guys, enticing trustful listeners with big gains.

What is prop-trading?

If you check Wikipedia searching for the meaning of this phrase, you will find quite a harmless definition. That is how we call a broker that sells financial instruments, mainly for his money, and receives a basic percentage of profit from speculations on securities and derivatives, and not from the “client’s spread“, interests for service accounts, etc.

In fairness, it should be noted that such companies providing capital for trading exist. If you’re interested, I advise you to read the “One Good Trade” book. But trade is conducted in such companies in the stock and futures markets. And only in the US. In the rest of the world, as usual, it was misunderstood and turned into a scam.

At some point, there was a great person that invented a simple scheme in the financial market on the “legitimate withdrawals.” The idea was brilliantly simple: to make sure that customers themselves have invested money in a brokerage account, in the hope that they will add millions to it. If you are an active trader, you will certainly come across lots of calls from different forex dealers, salespersons that somehow were hunting for your money. Usually, you answer “No” on all of their proposals on opening an account, because you remind yourself dozens of firms that collected money from customers and then disappeared. But, what would happen if one day the telephone will not start with a request for the deposit, but vice versa - will offer you money to manage?

There’s always free cheese in the mouse traps

Every trader dreams of money received to manage them. Such dream it based on the fact that no matter where you invest, such management will only bring advantages to a trader: you don’t need to worry about triggering of stop-loss orders (you’re trading not for your own money), you will get a lot of money at once (colorful traders’ dreams look exactly this way), and the main thing - it’s fun for vanity, for a trader the TM (Trust Management) is a reward, recognizing his achievements. Think and feel the sweet sounds of this phrase: “I have zillions in TM”.

In general, received a similar offer, your morning sleepiness or evening tiredness will immediately disappear. You won’t have time to look around and will be listening to those attractive deal conditions in a tense silence. Of course, you will be dazzled by this unexpected luck that will make you try to prove that you are the one and only trader, who can be trusted with a decent amount. And, as the company is solid, it just needs to make sure of your good intentions, but they are ready to believe your words, even in spite of the many-year statement (the results of your trading) that you have gathered with the signatures and seals of your broker.

If you were deluded as grannies are, on the pretext that they allegedly got a help from the state, and they just need to pay 13% of the taxes to be paid from this (still not received!!!) sum. But, you would definitely know what to do in this situation, you would surely not believe them. In fact, you are deluded and you do believe. You are told that you need to put a certain non-essential amount of money, and it should be made to open an account for a large sum, thus, you need to trade and prove that you are the best. Are you listening carefully at this moment? Of course, no, at this point you are already choosing a yacht of your dreams with lifeboats and photo models in the board. At this moment, you are “glued”.

You will come off not soon because the whole video content and just published online on the benefactor’s website “thank you notes” from the lucky ones that will strangely repeat your dreams. Here, they are the ones, who “came and won”, those who “received zillions” to their management, here are their yachts and models. And you wouldn’t even think of googling the images to see where they were taken, or even answer the question, why these lucky ones, whose «true story» was published on the website of the “prop”, don’t even have Facebook in our times?

At the end of XX century the idea of such a fraud, when the trader repeatedly brings more money to the opened brokerage account, was called “prop”. Methods of “cheerful 90s” for deluding people and getting their money were adopted by many professionals, by putting in the formula the “TM bait”. This “bait” is used to catch the forex traders, take their money, and in return to give not the promised amount, but only hope.

Psychological hook was done right, as the traders cast consists of people bringing their money just for their personal ephemeral dream, filling and draining the deposits again. They go for it, despite the fact that they are perfectly familiar with the statistics about 90% of the “losing” in the market. But here the dream was clothed, visualized and served in the “silver platter”. Moreover, the “props” don’t even request money, but conversely - offer, so you only need to give a little bit for “technical costs”.

And what are the costs? Usually, they request money for supporting the functioning of the trading platform, as props have their own one, “innovative”, but after the Metatrader 4, this innovation looks like a village toilet “hastily assembled in the field”, but do the “future oligarchs” think of it? A trader will not even notice the constant freezes, requotes, spikes and non-market quotes. “Future oligarch” will be higher than the users that were writing on the forum about how they were diluted. They were, allegedly, illegally thrown out from the competition and that they say that some gap was not from the market, after which stop-losses have triggered, etc.

What’s the catch?

So, what is the essence of “props”? The fact that the path to them from the trader will always be opened. So, how to repeat the trader deposit?

The fact is that the “props” organize a contest with different steps and conditions, levels of losses and profits, and the time is limited. Lost in the competition – your money is lost. Do you want to continue to participate in the attraction of unprecedented generosity – pay the amount again, what if it works out? To insure that the trader doesn’t get off the hook, he will be motivated, namely by telling the story of a “The Little Engine That Could”, and will show the real person, what can I say here? Any self-respecting scam always has best psychologists on the service, because it’s impossible to do without them.

A separate topic is the “near-market”. It brings considerable income. Here the trader is offered to be taught and is given systems to buy that “Holy Grail to earn for a yacht”, will hold a lecture on a topic “making money on the market is like to push two buttons”, but it’s all for the money, and of course, on the pretext that learning is better when you pay. And you spend a much higher amount of money to study than your first deposit was.

But, a fire of greed flares up in us, but in our everyday ordinary human condition - it’s just a lamp, however, if anyone makes us believe in the “Golden Mountains”, the flame in our soul’s increase, burning sanity and prudence.

Props’ business brings a decent income, so specialists who develop the “offers you cannot resist” on a psychological level work there. Moreover, for traders’ greater certainty in their decisions, there are many authoritative opinions on the thematic forums saying that “props” are good and that they are stimulus to strive for profit, and the loss limits are for the training the “trader’s discipline.” All of the traders don’t mind. Prop is a kind of test. If you passed the IQ test and you’ve got, for example, 40, would you brag? Or would you resent that the test is rigged and you cannot have such a low number? You would not tell anyone, but would pass the test again, and then again and again. Willing of revenge is also one of our negative qualities.

Why is the proprietary trading offers insincere and why trader will always be a loser?

First, you need to pay money. Why “they need to”, but you pay, where is the logic? If you’re looking for talented traders, you will invest. Everyone knows that our personal data flows to other companies and then some unknown companies that are also brokers start calling us. So, if the broker is searching for a “talent”, the trade statements with positive equity could be found in the same way as personal data, and that’s not counting the PAMM-accounts, where we even don’t need to look on the statement and just find out the personal data.

Second, the competition is limited in time. If the loss is discussed, then why to talk about the profit? The desire not to prevent the loss limit will force you to act much more conservatively, and you will never be able to enter some specific profit parameters. Since, on the basis of all the conditions, these parameters are calculated by the props and set as conditions.

Third, props’ trading platform. Why not Metatrader, and why “props” need to reinvent the wheel, spending money on their own software? I think, there is no need to explain.

Objection like: “they have to teach to trade profitably, and only then give the money,” does not hold water at all. If props really had working algorithms, would it be difficult to create an EA, instead of looking for newbies that can make a mistake?

Fourth, there are props, which really add money to yours. That is, if you have a hundred dollars, they gave a thousand, and you trade for “their money.” This is the classic scam. You trade up to the moment until your hundred disappears. Next - the account will be closed. The “prop” breaks even (and he never had his own money, because you just traded with huge leverage, and if all operations were carried out on prop’s terminal, then perhaps your orders weren’t even traded on the market?).

In general, these guys can make a movie like “The Wolf of Wall Street”. Incidentally, the companies of this kind exist to this day, as the scheme under which they earn money by providing “penny” stocks gives a very high reward. Props do not even give a stock for that.

Along the way, earning on all sorts of near-market things (training, paid software, etc.), using accumulated Forex experience, they play against you on their trading terminals. And the competitions are created only because that if you were taken all the money at once, you can cry - “Help!”, and then someone will pay attention to your scream. Isn’t it better to help the poor trader to lose the money, because then we can say that it was his mistake, moreover, with this statement will 9 times out of 10 agree and bring more money.

In fact, there is no sense in props, because there are no generous uncles freely giving money on the internet. Unless you have not been taught as a child that if a stranger gives a candy on the street, it is not worth to take it? Of course, you are already an adult, and the “stranger’s sweetie” on the Internet will result in loss of money for you. Only in this case, you will become at some time a simple donor, bringing money again and again, not even thinking to draw analogies with the MMM and other rooking companies. “You are not like that, they are not like that…”.

Alternative to prop-companies

The alternative to all this could serve PAMM-accounts. Your account will be opened, investors will bring money, you set the conditions, there are no restrictions on the deposit. You will only need thus attracting investors with your results. Do not forget to develop public relations skills, because it is difficult to attract investors, but possible.

Do you not know how to trade? There is a large number of dealing centers that are ready to teach you for free, providing personal managers. There are also real-selling traders philanthropists publishing freely their techniques, they are difficult to find, but it is possible.

No money for beginning capital? It also can be solved. There is a no-deposit bonus system, but of course, it is necessary to search, in what companies it is possible to withdraw money, but if you are a beginner, then first you will still be losing, and the first bonuses will be just for training.

If you are an experienced forex trader, long working in the market, then you already know exactly that a deal can be successful only if it runs on your terms, you enter on the previously set level by you, and the profit is set, based on your own considerations, and the stop-loss is chosen by you personally. Now, imagine for a moment a trade, where you are told what to do, where you go and constantly lose money on these transactions, the consequence – loss is growing, but you are told that you need one more transaction and everything will be OK, it will definitely cover all losses and fulfill all your dreams. Stupidity, isn’t it? It is after all props strategy is “to lure and to make them lose (in your favor)”.

Look for something that suits you personally, always invest money only on your own terms, take care of yourself and your money, don’t get lured, asses your trading capabilities and remember - “It is better to be than to seem.”

Take care, Michael

ForexTraderPortal.com