More Prop Firms Are Closing Down, When Will This Sh*tshow End?

Fazzaco has observed in the past month that the prop trading community seems to be facing yet another turbulent period. With Eightcap once again severing platform support for a number of small, medium-sized prop firms, leaving them unable to access MetaTrader 4 and MetaTrader 5, a new wave of prop firm closures has ensued - approximately twenty firms have shut down so far.

The Beginning: Karma, FFT, and More Prop Firms Lose Their MetaTrader Broker Eightcap

Last week, on August 15, Dutch retail prop trading firm Funds for Traders (FFT) issued a statement​ announcing that Eightcap had informed them that support for prop trading on the MT4 and MT5 platforms would be discontinued immediately. As a result, FFT could no longer provide services to its clients.

Similarly, just a day before, Karma Prop Traders (Karma), a prop firm that had recently introduced major updates and launched new offerings, unexpectedly announced its closure after just two months of operation​. According to Karma's founder, Eshan Balapatabendi, the firm encountered severe difficulties due to unfulfilled promises from one of their technology providers, leading to nearly four months of delays and increased costs. It's not hard to surmise that this unnamed provider was likely Eightcap. However, the founder also noted that the firm faced financial troubles due to fraudulent cheaters exploiting system vulnerabilities, which ultimately forced them to shut down.

These cases are not isolated. Fazzaco has also reported the closures of other firms like Funded Engineer​, True Forex Funds​, and Indigo Trader Funding​.

It's important to note that this isn't the first time Eightcap has pulled the plug on gray labels to prop firms. Back in February, Fazzaco was among the first to report that under pressure from U.S. regulators, MetaTrader was forced to tighten its regulatory policies​. As a result, several "gray label providers," including Eightcap, abruptly cut off services to many firms, triggering the first wave of prop firm closures and a subsequent migration of those that survived.

Prop Traders: "When Will This Sh*tshow End?"

The ongoing prop firm closures over the past few months have also affected numerous prop traders. The big question on everyone's mind is whether these firms can continue operating normally. Many traders have expressed that after witnessing the regulatory turmoil of the past six months, it's become clear that the only sensible choice is to trade with major prop firms like the5ers or FTMO where they can trade with real accounts. The firms that shut down immediately after losing MT platform support all share a common trait: they only offered demo accounts to users and mirrored the trades on their own real accounts on MT4 and MT5 - a practice that has been widespread in the prop trading industry.

However, the downside of trading on major platforms is that the challenge fees are more costly, leverage is lower, and the range of tradable assets is limited. This is particularly true for CFDs (Contracts for Difference). One of the key reasons U.S. regulators cracked down on the prop trading industry earlier this year is that CFDs are not permitted in the United States, as they are considered OTC (over-the-counter) financial instruments that do not comply with U.S. securities law. As a result, American traders are among those most affected by this sh*tshow and are also the ones most eager for it to end.

Key Factors for Prop Firm Success

We've previously mentioned that in recent years, many brokers have ventured into the prop trading business. The firms that succeed in this space often excel in direct response marketing, influencer marketing, and social media engagement (see Fazzaco's article, What Do Brokers Do As More Traders Turn to Discord?​).

Finally, understanding customer needs and addressing them effectively is crucial. Fazzaco noted a comment from a prop trader on Reddit: "I hope everyone has been paying attention to the prop firm mess & is taking notes! My goal is to make money for my real account with prop firms, withdraw it, & not depend on any of these firms."