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The proprietary trading industry has seen explosive growth in recent years, with hundreds of new firms launching in forex, crypto, futures, and even sports betting. But beneath the surface, a harsh reality remains: many of those firms quietly disappear within the first 90 days.
Founders often search for answers to "how to start a prop firm" or "how to open a prop trading firm." But a more useful question in 2025 might be: "Why do so many prop firms fail?"
Based on firsthand operational insights and market-wide data, here are the 3+1 main reasons prop firms struggle - and what founders can do to avoid the same fate.
1. Inadequate Payment Infrastructure
One of the first cracks in a prop firm's foundation is often invisible at launch: unreliable payouts. Without proper access to payment processors that can handle global, fast, and compliant transactions, firms quickly lose trader trust and operational flexibility.
Too often, founders underestimate how fragmented the payment landscape is. What works for one region may be blocked or delayed in another. Late payouts, failed transactions, and limited payment and payout methods can all result in support overload, public negative promotion, and lost revenue.
To scale internationally - especially in emerging markets like LATAM or Southeast Asia - prop firms' founders must partner with multiple PSPs or Payment Orchestrators. The ability to receive and send money out quickly is critical.
2. Weak or Missing Risk Management Tools
The second - and often fatal - issue is poor risk oversight. Prop firms without strong risk management technology are constantly exposed to cheaters, loopholes, and payout leaks.
Challenges may appear to run smoothly until you realize you've paid out to accounts that were not aligned with your rules and conditions:
- Copy trading
- News event arbitrage
- Account sharing or duplication
- High-frequency trading patterns
According to internal data from TradeTechSolutions.io - prop firm tech provider powering +45 prop firms (CFD, Crypto, Futures and Sports Betting space) - over 40% of failed trader challenges result from daily drawdown breaches, not poor strategy. Founders who lack tools to monitor and enforce these limits in real time are flying blind - and often bleeding cash.
Cheater detection is no longer optional. Platforms now need built-in automation to flag suspicious behavior early, protect firm margins, and maintain a sustainable business model.
3. An Unsustainable Revenue/Payout Model
Even with good tech and a working payment system, many firms still collapse because their business model is not sustainable.
Two major issues show up again and again:
- Challenges that are too easy, which create an unbalanced payout ratio
- Wrong pricing models, which either attract low-retention traders or generate insufficient margin
In addition, some tech providers still operate on too high monthly fees, per-account charges, or revenue-sharing models that eat away at a firm's bottom line before it reaches profitability.
Advice to founders: Don't guess - study. Research the top 15–20 prop firms in the market. Focus on those with at least 18–24 months of operationalhistory. These are firms that have weathered platform issues, payouts at scale, affiliate surges, and major drawdown cycles. Look at their public challenge structures, dashboards, trading rules, and trader engagement models.
But don't just copy. You're only seeing the surface - not their monthly ad spend, affiliate deals, backend automation, or margins. Ask:
- Are they relying heavily on affiliate revenue? Or is it just a part of the equation?
- Which platforms are they marketing on?
- How do they structure challenges' structure, challenge resets or re-engagement flows?
Use these firms for inspiration, not replication. Then test your ideas at a small scale, collect feedback, and adjust.
A successful model requires not only smart challenge design but also automated enforcement and data-informed iteration - not assumptions.
+1: The Founder's Mindset
While tech and operations are essential, the real wild card is the founder's mindset.
Firms don't just fail because of systems - they fail because of how leadership responds when those systems are tested. Some founders freeze when markets shift. Others treat every disruption and every "problem" as an opportunity to improve.
Final Takeaway: Build Smart or Break Early
Founders launching in 2025 face a different market than even two years ago. Competition is higher, traders are more informed, and expectations are faster.
The most common mistakes aren't flashy - they're operational:
- Poor PSP setup
- No cheater detection
- Weak tech scalability
- Mispriced challenges
- Closed founders' mindset
If you're thinking about how to start a prop firm, take the opposite approach: start by figuring out how not to shut it down.
Leverage tested infrastructure. Start with white label prop firm solutions that are already powering successful firms. And only after real-world growth, revisit the idea of building in-house - once your needs are clear and your business can afford to invest in custom tech.
