Swing Trading Prop Firms

Key Highlights

The evaluation-based programs at the swing trading prop firms enable traders to demonstrate their trading skills to gain access to a fully funded account without risking years of financial ruin.

With reasonable drawdown limits, flexible holding periods, and fair profit splits, these programs help eliminate the barrier to swing trading.

In a nutshell, the following best describes what swing trading prop firms are all about:

• Swing trading works best when you match your trading strategy to the prop firm rules, but not all firms provide for this, hence the need to find a swing trading-compatible firm.
• Many traders struggle to pass evaluation challenges, particularly in volatile market conditions.
• Swap fees can erode profitability on your multi-day positions faster than you can imagine. Traders cannot afford to ignore swap dynamics if they hope to hold on to their edge. On many prop platforms, "swap-free" accounts are a sought-after feature. If a firm uses "raw spreads + commission," high swaps can turn a winning long-term trade into a break-even one.
• Scalpers require dozens of winning trades to hit their profit targets, for many swing traders, 5-8 setups a month is quite high. Many find only 1-2 high-probability setups per week across major pairs.

Swing Trading Prop Firms

Many firms in the prop trading space, especially futures prop firms, restrict swing trading because of the perceived risk associated with this type of trading.

Some firms restrict swing trading due to gap risk and exposure to overnight volatility. These are gaps brought on by overnight holding and holding trades through the weekend.

These firms are of the view that these gaps can prove detrimental to the trader’s capital if the trader doesn’t have any good risk management practices in place. But the good news is that this kind of thinking has started to change.

Many of the firms that are actively involved in the prop space trading space today have begun to realize that not all swing traders are bad; hence, their change in attitude. Truth be told, swing trading can work if the trader is experienced, disciplined, and in a position to better understand risk.

Such traders will often tend to have a higher profitability consistency, more stable long-term performance, and lower emotional burnout. In this guide, you’ll learn everything you need to know about swing trading prop firms, their benefits, and the challenges that come with partnering with one.

Read on to learn more about swing trading prop firms and how to find the best!

What Is Swing Trading and Why Does Your Choice of Swing Trading Prop Firms Matter?

Swing trading involves holding open trade positions for extended periods that may run into days or even weeks, all in a bid to capture medium-term price movements. Rather than open and exit trades in the same session as happens with intraday trading, you’ll use a hold pattern to ride a trend.

Put simply, your strategy will require you to keep an eye on the trading setup over multiple days that can extend into weeks before cashing out. In practice, this means you’ll be executing fewer trades, using larger profit targets, placing wider stop losses, and relying on overnight and weekend holds.

For example, you could enter a trade on a Monday and keep the position open until the following Wednesday. What this means is that you’ll have to hold that position through the Friday market closure and into Monday’s opening.

And this right here is what the prop trading firms will be trying to avoid. The trading rules at a typical prop firm are designed with an intraday trader in mind – someone who closes all open positions at the close of market hours each day.

It’s not uncommon for swing traders to run into forced weekend closures that end up invalidating trade setups and equity-based drawdowns designed to count unrealized pullbacks. And this is not forgetting the evaluation deadlines that force you into taking entries before they are ready.

So, when the time comes to research swing trading prop firms, there are a few things that will matter more than others:

• Overnight and weekend holdings that aren’t subject to forced closures
• Freedom to hold open positions through news events
• No time limit on the funded account evaluation
• Balance-based drawdowns that only consider closed losses.

How Modern Prop Firms Are Adapting Their Rules for Swing Trading

Traditional prop firms were designed for intraday traders. However, more and more firms have started to realize the benefits of working with experienced swing traders, which has led them to adjust their holding parameters. What this means is that swing traders can now hold positions through multiple sessions. Some have even allowed trading through news events.

Trading Strategies to Use at Swing Trading Prop Firms

As seen above, swing trading is a bit different from traditional trading in that it requires the trader to hold positions over prolonged periods. For a trader to do this without incurring losses, they’ll need to have trading strategies specifically designed for this type of trading.

Examples of strategies to consider include:

• Trend Following: It’s a strategy that involves identifying the direction of prevailing trends in the market and using the same to open your positions.
• Mean Reversion: A mean reversion strategy seeks to profit from a price reversal that may occur after a financial asset has deviated from its average price.
• Breakout Trading: The breakout trading strategy focuses on identifying assets that are about to deviate from a set of trading patterns.

Swing Trading vs. Day Trading Strategies

If you’re actively trying to make money in the financial markets, then day trading and swing trading strategies are two methodologies that you’ll need to look into. Both methods focus on short-term money-making opportunities, but differ in terms of risk, approach, and execution speed.

Before we look into how they differ, let’s start by first introducing you to day trading:

What Is Day Trading?

Day trading or intraday trading is a strategy where a prop trader gets to make several trades on the same trading day, but in quick succession. Its goal is to capture the price movements happening during the trading session.

Its advantages are several and include:

• No Overnight Risk: All positions will be closed by the end of the trading day, and as such, there will be no overnight risk to worry about.
• Quick Profits: Prop traders engaged in day trading aim to profit from short-term price fluctuations, which, if timed correctly, can help them make quick gains.
• Liquidity: An intraday trader can enter and exit the financial markets with ease due to high liquidity.

While it has its benefits, it also has some notable drawbacks, which include:

• Time-consuming: Day trading is not something that you can approach half-heartedly. Once you open a position, you’ll need to dedicate all your time to it until the market closes or you exit it.
• High Risk: Day trading is characterized by rapid trading activities, which can significantly increase your chances of losing your trading capital, especially if you’re a newbie trader.
• High Stress: The fast-paced nature of intraday trading can be emotionally and mentally draining to the trader.

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Are You Looking For A Funded Trader Program?

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A Side-by-Side Look at Day Trading and Swing Trading

Now that you know the meaning of swing trading and day trading, let’s take a look at how the two strategies fare when placed side by side:

On the question of which is better between the two, you should note that each trading style is best suited for different individuals. For example, swing trading is ideal for those who prefer holding positions for long periods. Day trading requires active involvement.

Having said that, day trading will be a good option if:

• You can make quick trade-related decisions
• Can handle the stress that comes with intraday trading
• Can dedicate enough time to constantly track and monitor the markets
• You want to avoid the risk that comes with holding overnight positions
• You’d prefer using leverage as you don’t have enough trading capital

On the other hand, swing trading is recommended for individuals who:

• Can patiently wait for your trade setup to develop
• Have experience using both fundamental and technical analysis
• Are equipped to take on overnight and weekend risks
• Prefer a trading style that doesn’t require real-time monitoring of the markets

Benefits and Challenges of Trading with Swing Prop Trading Firms

Partnering with the swing prop trading firms can prove to be a real game-changer for a prop trader. Below is a look at the major benefits linked to working with prop firms:

Benefits

Access to Larger Trading Capital

The noticeable change in your buying power is by far the most obvious benefit of working with the swing prop trading firms. Passing the funded evaluation challenge qualifies you to trade with a six-figure account. And with this increase in purchasing power, it means that your positions will also increase.

For example, if you had been accustomed to trading with $5,000 of your own money, a 20% profit means you’d walk away with $1,000 in profit. But when using a funded account with a capital allocation of $100,000, a similar trade could possibly land you $20,000. Please be advised that in a prop firm environment, a 20% move on a $100k account without violating a 10% maximum drawdown would require extremely low leverage or multiple positions.

Leverage the FX Market’s Volatility with Less Personal Risk

The FX markets may not be as volatile as the crypto markets, but they do have their moments. For a day trader, such movements may signal the end of their trading plan. But for a swing trader, volatility will be your greatest ally.

Your goal is to capture a percentage of these large price fluctuations. When partnered with a prop firm, it means you’ll be using its money to harness this volatility, thus less risk to your personal finances.

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Free Prop Firm Challenge

Get Started with the Free Funded Account Challenge

Free Prop Firm Challenge

Your personal financial risk when working with the swing trading prop firms is limited to the evaluation fee. Speaking of which, you should note that many firms will refund this fee when you pass, but there are also those that don’t. Confirm with the firm beforehand to know where you stand.

Trading with the firm’s capital is a setup that can prove mentally liberating, allowing you to trade confidently knowing that losses are limited to the account rules, with you, the trader, primarily risking the evaluation fee. But please remember to adhere to the drawdown limits, as failure to do so could lead to the termination of your account.

High Profit Potential Even After Splitting with the Swing Trading Prop Firms

The prop firm model works in such a way that the firm makes money when you make money. The firm will give you a profit split agreement that will let you keep a large portion of the profits made. Typically, such agreements will start anywhere from 50% and go as high as 90%.

In such a profit split agreement, it means that you’re retaining the lion’s share of the reward, with the swing trading prop firms keeping a modest cut. The percentage the firm keeps is its reward for supplying the trading capital and the underlying infrastructure.

For example, if your trading activities in a month allow you to net a profit of $10,000 at an 80% split funded account, you’ll keep $8,000, which, no matter how you look at it, is a great return on your investment. Keep in mind that while the "account size" is $100k, the "risk capital" is actually only the drawdown limit (e.g., $10k).

Challenges

The benefits are many and enticing as seen above, but this doesn’t mean that swing trading with prop firms is without challenges. Some of these include:

Evaluation Pressure and Rules

Swing trading prop firms require you to take an evaluation challenge before you can get funded. During this evaluation, you must hit a certain profit target without breaching the firm’s risk management rules. Examples of these rules include daily loss limits and maximum drawdowns.

While this may seem like a simple task for a swing trader, the rules attached to the targets may add some pressure to your normal trading style. For example, you could spot an opportunity that you believe will bring good returns. But the firm mandates that you place a stop loss order with each position.

Drawdown Limits and Risk Management

Prop firms use drawdown limits to protect their capital. Some of the common drawdowns used for this include the daily drawdown and the overall maximum drawdown.

As a swing trader, the presence of these two drawdown levels means you have no choice but to be strategic with your stop placement and position sizing. And this will become even more important when you’re planning on holding on to the same position for multiple days.

The challenge lies in adhering to these limits without altering your trading style. In some cases, it may require you to stagger your entries or even adjust your position sizes. Please note that some swing trading prop firms may require a minimum number of trading days during the challenge.

Psychological Pressure of Trading Another Person’s Money

Even for experienced prop traders, there’s a certain level of mental adjustment that comes to you when you’re trading another person’s money, in this case, the prop firm’s capital. With every trade you make, you must remember that even the simplest violation will lead to the closure of your account.

When you have this thought simmering at the back of your mind, you may find yourself having to make more cautious trades. There are also times when you could choose to swing for the fences in an attempt to attain your targets much faster.

Both impulses will need to be kept under wraps, or you’ll end up engaging in emotional trading, which is a whole vice all by itself. All in all, the pressure of trading money that isn’t yours may cause you to deviate from your regular trading strategy.

Features to Look for In Swing Trading Prop Firms

When looking for swing trading prop firms to partner with, there are a host of features that every trader should keep in mind. These are features that will assist in enhancing your trading journey by providing the support needed to succeed in swing trading.

Features to consider include:

1. Funding Opportunities: Swing trading has a low frequency of trade execution, which is why every trade made needs to matter. Consider the capital allocation in each prop firm before making your choice.
2. Leverage Options: What type of leverage does the firm offer? As a swing trader, you need a leverage level that aligns with your trading strategy and risk management plan. This is because you’ll have to hold positions longer than a day trader.
3. Flexibility to Hold Positions on Weekends: Most traditional prop firms have rules against holding open positions over the weekend. If your style requires that you hold trades this long, choose a firm that provides this kind of flexibility.
4. Access to Education Materials, Resources, and Support: An ideal swing trading prop firm should provide you with access to trading-related education materials, resources, and support. Be on the hunt for firms that provide comprehensive training programs.

As you research on what to look for in prop firms, make sure to keep the following swing trader's prop checklist in mind:

1. Check the "Weekend Hold" Rule: Explicitly verify if you need to "buy" a specific add-on to hold over weekends.
2. Calculate the Swap: Before entering a trade, use a calculator to see if the 7-day swap cost negates the projected profit.
3. Verify Drawdown Type: Ensure the firm uses Static or Balance-based drawdown rather than Trailing Equity drawdown, which "chokes" long-term trades.
4. News Consistency: Some firms allow holding through news but forbid opening trades during news. Confirm this distinction.

Conclusion

Swing trading with a conventional prop firm isn’t an easy undertaking, but it can be quite rewarding when done in a firm that understands the needs of a swing trader. The reason many traders struggle is that they choose to partner with firms that don’t match their trading styles. Therefore, in your search for the best swing trading prop firms, make sure to focus on firms that provide robust funding, flexibility to hold positions overnight, and supportive trading conditions. Audacity Capital is a prop trading firm that is renowned for its versatile funded trader program.

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