Multiple prop firms have publicly come out against the arbitrage exploitation of their platforms. There are even many groups that are offering the services of gurrenting profits from prop trading activities.
Although such exploitations are known, PipFarm’s CEO, James Glyde, recently pointed to the organised nature of such groups.
“A very important feature of this scheme is the ability to pressure firms into paying out after they are caught to avoid negative publicity and firms find themselves in a lose-lose situation,” Glyde wrote in an X (formerly Twitter) post.
“It makes it incredibly hard for traders to see the truth.”
ATFunded, the prop firm of CFDs broker ATFX, also “ identified and addressed an instance of group trading activity” and had terminated services with the related accounts. The prop firm even refunded their fees in full.
What Is the Prop Firm Arbitrage?
Prop firm arbitrage works very well as the traders do not have to trade with their own capital. In fact, an investment of a small capital to obtain 2 live accounts can result in handsome profits.
All the traders have to do is find two prop firms with similar trading rules and buy challenges with them, place coordinated opposite positions with the two accounts, and finally obtain two live accounts. These two live accounts can then be used to generate profit by arbitrage trading – placing two opposite trades with these accounts as one will surely win.
For one profitable run with two live accounts, a trader simultaneously needs to buy a total of 8 phase 1 challenges – 2 challenges to obtain 1 phase 2 challenge and then 2 phase 2 challenges to obtain 1 live account.
At the end of the arbitrage trading scheme, the trader will lose 1 live account, but will be left with 1 profitable live account. The exploitative trader can then repeat the process again to obtain another live account and then arbitrage with 2 live accounts (1 old live account and 1 new live account) again.
These strategies do not even need traders to have any knowledge of trading strategies. Rather, a simple arbitrage strategy by placing hedge bets guarantees profits.
Most of these operations are performed by coordinated groups, and traders need to pay a fee to join them. However, a YouTube video meant only for educational purposes detailed this strategy.
A Known Menace
Although Glyde was one of the first to post about prop firms’ arbitrage exploitation publicly, this proactive action is known to the industry.
Last year, Alpha Capital Group blocked 150 users for allegedly engaging in “group trading” and “account management practices,” violating the platform’s rules. Another prop firm, Karma, also shuttered services, blaming liquidity issues caused by “cheaters” who exploited its challenges.
However, none of those firms detailed the exploitative nature of the arbitrage trading.
“This problem has been around since the early hay days of prop,” said Joshua Dentrinos, a trading industry insider. “It has gotten a lot worse recently as it has become more sophisticated. The cheating groups range from random influencers on social media trying to get certificates to sell another product, all the way up to large scale groups borrowing ID’s of people.”
“During my tenure in Prop, I have seen many groups gaming the system. Disclosing how to catch them only helps them, but there are ways to catch them before they even open a trade. Prop owners have to let go of the revenue and focus on the long game and get them out before harm is done that way they lose the power to blackmail the prop firm in public. The hardest ones to remove are the ones who are popular on social media, and there are a lot of them.”
Multiple prop firms have publicly come out against the arbitrage exploitation of their platforms. There are even many groups that are offering the services of gurrenting profits from prop trading activities.
Although such exploitations are known, PipFarm’s CEO, James Glyde, recently pointed to the organised nature of such groups.
“A very important feature of this scheme is the ability to pressure firms into paying out after they are caught to avoid negative publicity and firms find themselves in a lose-lose situation,” Glyde wrote in an X (formerly Twitter) post.
“It makes it incredibly hard for traders to see the truth.”
ATFunded, the prop firm of CFDs broker ATFX, also “ identified and addressed an instance of group trading activity” and had terminated services with the related accounts. The prop firm even refunded their fees in full.
What Is the Prop Firm Arbitrage?
Prop firm arbitrage works very well as the traders do not have to trade with their own capital. In fact, an investment of a small capital to obtain 2 live accounts can result in handsome profits.
All the traders have to do is find two prop firms with similar trading rules and buy challenges with them, place coordinated opposite positions with the two accounts, and finally obtain two live accounts. These two live accounts can then be used to generate profit by arbitrage trading – placing two opposite trades with these accounts as one will surely win.
For one profitable run with two live accounts, a trader simultaneously needs to buy a total of 8 phase 1 challenges – 2 challenges to obtain 1 phase 2 challenge and then 2 phase 2 challenges to obtain 1 live account.
At the end of the arbitrage trading scheme, the trader will lose 1 live account, but will be left with 1 profitable live account. The exploitative trader can then repeat the process again to obtain another live account and then arbitrage with 2 live accounts (1 old live account and 1 new live account) again.
These strategies do not even need traders to have any knowledge of trading strategies. Rather, a simple arbitrage strategy by placing hedge bets guarantees profits.
Most of these operations are performed by coordinated groups, and traders need to pay a fee to join them. However, a YouTube video meant only for educational purposes detailed this strategy.
A Known Menace
Although Glyde was one of the first to post about prop firms’ arbitrage exploitation publicly, this proactive action is known to the industry.
Last year, Alpha Capital Group blocked 150 users for allegedly engaging in “group trading” and “account management practices,” violating the platform’s rules. Another prop firm, Karma, also shuttered services, blaming liquidity issues caused by “cheaters” who exploited its challenges.
However, none of those firms detailed the exploitative nature of the arbitrage trading.
“This problem has been around since the early hay days of prop,” said Joshua Dentrinos, a trading industry insider. “It has gotten a lot worse recently as it has become more sophisticated. The cheating groups range from random influencers on social media trying to get certificates to sell another product, all the way up to large scale groups borrowing ID’s of people.”
“During my tenure in Prop, I have seen many groups gaming the system. Disclosing how to catch them only helps them, but there are ways to catch them before they even open a trade. Prop owners have to let go of the revenue and focus on the long game and get them out before harm is done that way they lose the power to blackmail the prop firm in public. The hardest ones to remove are the ones who are popular on social media, and there are a lot of them.”
This post is originally published on FINANCEMAGNATES.
