Prop Trading Firms Raise Regulatory Concerns Again

In a warning released by Consob today, the Italian financial regulator, investors are being cautioned about the risks associated with a new wave of online trading simulations that mimic real financial activities under the guise of educational games.

Termed variously as shadow investment games or funded trading accounts, these simulations entice participants through web and social media promotions, promising the opportunity to earn profits by passing skill tests.

The scheme typically involves paid enrollment in training courses, where successful participants are offered a transition from simulated trading to supposedly real trading with capital provided by so-called proprietary firms (prop firms). The allure includes profit-sharing incentives once participants start trading with real funds.

However, Consob has received multiple complaints from users who have engaged with these offers. Issues reported include exaggerated test difficulties designed to prompt repeated attempts and subsequent course enrollments, as well as allegations of withheld profits despite promises made during the recruitment phase.

Similar warnings have been echoed by financial regulators across Europe, including Belgium's Fsma and Spain's Cnmv. These authorities caution that such schemes pose significant risks, potentially leading to financial losses for participants who invest substantial amounts based on promises of simulated successes.