The rise of prop trading firms has created exciting opportunities for traders to access large amounts of capital and accelerate their trading careers. However, this growth has also attracted its fair share of scams. With so many firms promising lucrative funding deals, it’s essential to know how to separate the reputable firms from those just out to take advantage of unsuspecting traders.

In this guide, we’ll cover seven tell-tale signs of scam prop firms so you can make confident choices and avoid getting burned.

1. CEO Flexing Money

One of the first red flags of a scam prop firm is a CEO who constantly flaunts their wealth on social media. While some successful CEOs do share their lifestyle online, there’s a difference between sharing milestones and flaunting wads of cash, luxury items, or other flashy displays.

Why is this a red flag?

(1) It suggests that the CEO may be more focused on creating an image than building a solid, reputable company.

(2) The firm’s money might not be coming from profitable trades but rather from fees collected from hopeful traders, which isn’t a sustainable business model.

(3) In many cases, it’s a tactic to lure in traders who may be impressed by the CEO’s lifestyle without looking closely at the company’s practices.

If the CEO is more interested in showcasing a lavish lifestyle than discussing trading, market insights, or value-added content, proceed with caution.

2. Too Frequent 50% Off Offers

While occasional promotions are common for most businesses, a prop firm that’s constantly offering 50% off or similar steep discounts should raise an eyebrow. Legitimate prop firms typically don’t need to rely on regular deep discounts to attract traders; instead, they focus on providing a solid product that brings in consistent interest.

Why frequent discounts are concerning:

(1) Devaluation of the service: Constant discounts may indicate that the firm doesn’t have a sustainable revenue stream beyond onboarding as many traders as possible.

(2) Quality concerns: Firms that frequently discount their challenge fees may lack a genuine evaluation process, potentially funding accounts with subpar trading conditions or terms that favour the firm over the trader.

If a firm is heavily discounting its fees or running sales more often than not, it may be a tactic to cash in before issues within the business become apparent quickly.

3. Is a White Label Prop Firm

Some companies operate as “white label” prop firms, meaning they don’t run their own infrastructure but instead rely on another prop firm’s setup, brand, or technology. While not every white-label firm is a scam, it can be a significant warning sign if they try to hide this aspect.

To spot a white-label prop firm:

(1) Compare terms and trading conditions: If a firm has almost identical conditions, fees, or evaluation rules to another prop firm, it could be a white label.

(2) Check for transparency: Legitimate firms are open about their processes, including who backs them, where they get their capital, and how they handle trader payouts. A white-label firm might gloss over these details.

White-label firms may have limited control over payouts, data security, and other critical aspects that a reputable, stand-alone prop firm should handle directly.

4. No Public CEO

A reputable prop firm generally has a public CEO or founder who is open about their background, trading experience, and vision for the company. This transparency builds trust and shows accountability.

If a prop firm doesn’t have a public CEO:

(1) It can indicate a lack of accountability: Without a face or name tied to the company, it’s harder for traders to know who’s responsible for their funds or any issues that arise.

(2) It raises questions about legitimacy: Transparent, reputable firms are usually proud to showcase their leadership, whereas scams often prefer to operate without public accountability.

A firm with a secretive leadership team might be trying to avoid being held accountable, so be wary of companies that avoid revealing who’s behind the brand.

5. No Public Presence

A prop firm’s public presence (on social media, forums, or reputable websites) is a good indicator of its legitimacy. If a prop firm lacks any meaningful online presence, it could mean they’re either new and inexperienced or purposely staying under the radar.

A few indicators of a non-reputable firm:

(1) Lack of engagement with the trading community: Firms that don’t interact with their audience or share educational content likely aren’t invested in building a long-term brand.

(2) No industry partnerships or mentions: A well-regarded firm will typically have industry relationships, client testimonials, or be featured on well-known trading platforms.

Legitimate firms usually maintain a healthy presence online, sharing updates, and educational content, or engaging with their traders through Q&A sessions or webinars. If there’s a total absence of these, it’s worth investigating further.

6. Not Listed on TheTrustedProp’s Trusted List

TheTrustedProp is one of the most reliable resources for prop firm insights, reviews, and giveaways. They also maintain a list of trusted prop firms, offering a go-to resource for traders who want to make informed choices about which firms are reputable. Firms listed on TheTrustedProp undergo a thorough vetting process, ensuring they meet certain standards for transparency, reliability, and fairness.

Here’s why TheTrustedProp’s trusted list is valuable:

(1) Comprehensive vetting: TheTrustedProp’s team assesses each firm for important criteria like payout policies, customer support, trading conditions, and transparency.

(2) Real trader feedback: TheTrustedProp gathers insights and reviews from real traders who have worked with the firms, giving you a sense of what to expect.

(3) Updated information: They regularly update their list, ensuring traders are aware of any new developments, good or bad, about the firms listed.

If a firm you’re considering isn’t on TheTrustedProp’s trusted list, it’s worth investigating why. Legitimate, established firms usually seek to be listed on credible platforms like TheTrustedProp to enhance their credibility.

7. Look at Trustpilot Reviews

Trustpilot is a popular platform where customers share reviews about their experiences with companies, including prop firms. While no firm has a perfect reputation, consistent negative feedback or accusations of withholding payouts should be taken seriously.

When checking Trustpilot reviews:

(1) Look for patterns in complaints: A few isolated issues are common with any company, but if there are repeated complaints about slow payouts, unethical trading conditions, or poor support, these could be signs of a scam.

(2) Be cautious of overly positive reviews: Scam firms sometimes flood Trustpilot with fake positive reviews to offset negative ones. Be wary of reviews that are overly generic or don’t provide specific details about the reviewer’s experience.

(3) Read recent reviews: Firms can change over time, so look for current feedback to understand how they’re operating today.

Trustpilot provides a good snapshot of how a firm treats its clients and whether there are significant issues you should be aware of.

Conclusion

With so many prop firms popping up, it’s essential to stay vigilant and look for signs of scams before you invest your time and money. From flashy CEOs to frequent discounts, a lack of transparency, or suspicious reviews, these red flags can help you identify potentially problematic firms. By sticking with firms that are open about their leadership, have a strong online presence, are vetted by resources like TheTrustedProp, and have positive feedback from traders, you can avoid scams and focus on growing your trading skills with a trustworthy partner.

Always do your due diligence, trust your instincts, and remember that if a prop firm seems too good to be true, it probably is. Happy trading, and stay safe out there!