Prop Firms: Scam, Fraud, or Legitimate Opportunity?

⚖️ Prop firms: scam or a legitimate business

Proprietary trading (“prop trading”) is a model where traders trade a company’s capital and share profits. These firms have surged in popularity, but at the same time stories of fraud and financial scandals have multiplied. The question arises: are prop firms a new opportunity for traders — or a dangerous scam? In this article we examine real‑world cases, the legal status of prop trading in different countries, trader reviews and complaint data, compare licensed and unlicensed firms, and offer practical advice to help you tell an honest company from a fraudulent one.

🕵️‍♂️ Real prop‑trading scam cases

Real incidents are the most convincing way to understand the risks. Below are several high‑profile examples with dates and facts:

Funding Talent (2021)

A Canadian prop firm that quickly grew to ~13,000 traders and then abruptly shut down in less than two years. In October 2021, management changed the rules (cutting the trader’s profit share from 80% to 25% and canceling active accounts), effectively depriving many of earned funds. By November 2021, Funding Talent had ceased operations entirely, and impacted traders publicly called it a “scam.”

Canadian inquiries reported the firm initially claimed it routed trader orders to the real market, but it later emerged that was false — trades were executed only virtually. Facing escalating payout obligations, the company tried to stay afloat by tightening terms and canceling payouts, which collapsed its reputation and triggered hundreds of angry reviews on Trustpilot and social media.

My Forex Funds (2023)

At the time the largest prop firm, operating since 2020 and attracting tens of thousands of clients worldwide. In August 2023, the U.S. Commodity Futures Trading Commission (CFTC) charged MFF and its owner Murtuza Kazmi with fraud: according to the regulator, the company collected over $300 million from traders under the guise of a prop program.

• Clients were led to believe they were trading real accounts with market access, yet in reality all trades were executed in a simulation where the firm itself was the counterparty.
• MFF was accused of unfair tactics: artificial order execution delays, slippage, and hidden fees that caused profitable traders to lose money or get blocked.
• By court order in late August 2023, the firm’s accounts were frozen and operations halted in the U.S.

On specialist forums, My Forex Funds is now listed as closed with a “scam” reputation (around 2/5 on Forex Peace Army), and users describe cancellations of accounts right before first profit payouts.

True Forex Funds (2024–2025)

A Hungarian prop firm that surged in 2022–2023 but ran into critical problems. In February 2024, TFF suddenly paused operations after platform developer MetaQuotes revoked its MT4/MT5 terminal licenses.

• This decision was linked to violations of platform terms and MetaQuotes’ tougher stance on prop firms.
• It also emerged that True Forex Funds had been placed on the CFTC’s RED List for soliciting U.S. clients without proper registration.
• The company initially announced a “temporary freeze” and promised a solution, but by late 2024 it shut down for good, citing insolvency.

In an official statement (early 2025), TFF announced permanent closure due to bankruptcy. The collapse of this “prop giant” shocked the community and highlighted the financial risks of this business.

FundedFirm (2024)

An example of an outright fraudulent startup. Launching in 2024, FundedFirm boasted about paying traders $95 million within just a few months. In November 2024, an exposé uncovered inconsistencies; shortly after, the firm quietly changed its site figure from $95 million to $9.5 million.

It became clear there were no real operations: the FundedFirm website was found to have copied the design and text of well‑known firm FundedNext, down to slogans. Bogus claims of hundreds of thousands of clients and no social media footprint raised red flags.

Investigators also found that FundedFirm handed popular bloggers “demo accounts” preloaded with winning trades to promote the company as successful. After the revelations, the site vanished, $85 million of “invested” funds disappeared, and the project went down as one of the biggest prop scams.

These are only some cases, but they clearly illustrate common schemes: from unstable models and quasi‑pyramids (Funding Talent) to outright deception and brand cloning (FundedFirm). Thousands of traders worldwide were harmed. Bottom line: even if a prop company promises the moon, assume fraud risk and verify every claim.

📜 Legal and regulatory landscape for prop firms

The legal status of prop trading remains unclear in many countries. Prop firms often operate in a gray area, arguing that clients don’t invest directly in markets but pay for “challenges” and trade demo accounts. Regulators, however, are paying closer attention to this fast‑growing sector. Here’s the picture in the U.S., EU, and Russia.

Regulation in the USA

In the United States, prop firms came under close scrutiny in 2023. U.S. law requires any entity soliciting money from the public to trade in markets (forex, futures, securities) to hold relevant licenses (e.g., broker‑dealer, FCM, investment adviser, etc.). Prop firms tried to bypass these rules by arguing their clients trade company funds and merely pay a participation fee. Precedents show regulators don’t accept that interpretation. In the My Forex Funds case, for example, the CFTC alleged the firm misled customers by creating the impression of real trading without proper registration and licensing.

MFF in effect operated as an unlicensed forex dealer: it took payments from traders and promised profit payouts without authorization. The result — fraud charges, business freeze, and placement on blacklists. Other firms hastily stopped serving U.S. clients to avoid similar outcomes. For instance, True Forex Funds was added to the CFTC RED List in June 2023 as a foreign firm illegally soliciting U.S. traders.

Overall, there’s no specific “prop trading law” in the U.S., but business practices can fall under commodity pool, forex dealer, or even gambling laws. Regulators focus on consumer protection: if a company promises trading profits and charges for participation, it cannot simply dodge financial rules. Thus, operating legally in the U.S. generally means securing the necessary licenses (still rare) or radically changing the business model — otherwise firms risk being deemed fraudulent, as with MFF.

Regulation in the European Union

In Europe, the situation is also far from settled. On one hand, prop trading may fall under MiFID II if a firm provides investment services in financial instruments. On the other hand, many prop firms claim they are not brokers and don’t take client funds for investing, but only assess traders on demo accounts — exploiting a loophole to avoid direct regulation.

European regulators have recently started scrutinizing the phenomenon, voicing concerns about the fairness of such services.

Warnings from EU regulators

• Italy: In July 2024, CONSOB warned investors about prop trading risks, comparing some offerings to a “financial video game” — users pay to attempt challenges, while the promised profit may be illusory. The regulator cited complaints that tests are made deliberately hard to force repeat payments and that advertised profits often go unpaid.
• Belgium: The FSMA stated some prop firms effectively entice consumers to spend money on simulated trading that encourages reckless behavior. “The challenges are not easy and not cheap, and consumers often have to take them many times to succeed — some may never pass. That’s precisely how prop firms profit.”
• Spain: The CNMV echoed these concerns, publicly questioning the legal status of prop firms and the consumer risks involved.

The European Securities and Markets Authority (ESMA) launched a review of prop‑trading practices across the EU in early 2024.

Comment by the Czech National Bank

Czechia became the first EU member where the regulator formally commented on the industry. In June 2024, the Czech National Bank (ČNB) stated that some prop‑firm models may fall under MiFID II.

• If a company transmits or executes client orders in financial instruments, or trades on its own account on behalf of a client, such activity requires an investment firm license.
• In these cases, prop firms must comply with regulatory requirements and be subject to supervision.
• There are exemptions in certain scenarios — e.g., where a firm truly trades only on its own account without providing services to third parties.

The ČNB emphasized it is monitoring the prop‑trading market closely and supports an EU‑wide approach to regulating the sector.

Regulation in Russia

In the Russian Federation there is likewise no dedicated legal framework for prop trading. Authorities tend to view prop firms more through the lens of market integrity than consumer protection.

In its 2024 annual report, the Bank of Russia noted that prop‑trading growth raises potential market‑stability concerns.

• Some prop teams account for a significant share of exchange trading volumes in Russia; their activity can affect price dynamics and market parameters.
• The central bank worries that the absence of specific internal‑control requirements creates loopholes for market manipulation.
• In 2024 the regulator documented instances of coordinated manipulation by groups of prop traders (with futures and equities) and took enforcement action.

In early 2025, the Bank of Russia urged prop firms to voluntarily strengthen internal controls and staff training around trading strategies to prevent violations.

Because individuals do not formally invest their own money in markets via the prop firm, such firms are not considered brokers or asset managers and thus aren’t required to have a Bank of Russia license. That does not imply safety — on the contrary, the lack of clear regulation is a key problem cited by experts. No license means no guarantees.

💬 Trader reviews and complaint statistics

Real user feedback is invaluable for assessing how prop firms behave in practice. Examining reviews on independent platforms (Trustpilot, Forex Peace Army, Reddit forums, etc.) helps surface common problems and red flags.

Overall ratings landscape

Reliable, long‑standing prop firms typically have relatively high ratings and a large number of reviews. For example, FTMO — one of the market pioneers — holds a 5/5 Trustpilot rating with nearly 25,000 reviews.

By contrast, suspicious “newcomers” are often absent from major platforms or have few reviews and low scores. A telling example is the already‑mentioned FundedFirm, which, despite claims of massive payouts, had only seven Trustpilot reviews.

Another clue is a sharp ratings drop: My Forex Funds had mostly positive reviews before the scandal, but sentiment flipped after the 2023 trouble.

Common trader complaints

• Non‑payment of profits and account cancellations: cases like MFF and Funding Talent, where accounts were annulled before payouts.
• Manipulated trading conditions: widened spreads, slippage, platform freezes.
• Excessive difficulty and hidden rules: harsh challenge requirements and undisclosed strategy bans.
• Review moderation and deletion: blocking negative comments and astroturfing positive feedback.

“There are good, bad, and downright awful firms. Always do your own research before signing anything,” advises an experienced trader on a forum.

Complaint statistics

Traders Union maintains a “blacklist” of prop firms with the year a scam was recorded: in 2023–2025 it includes dozens of names, among them Fidelcrest, True Forex Funds, BluFX, MyForexFunds, and others.

On ForexPeaceArmy, the prop‑trading review section is filled with warnings about different projects: besides headline cases, users add small, lesser‑known firms that have also burned someone.

📊 Licensed vs. unlicensed prop firms

One of the most important reliability factors is whether the firm is regulated. There is no universal “prop license,” but some firms obtain a broker or investment‑firm license somewhere; others operate without any oversight. Here’s how they differ and what risks traders face in each case.

Licensed prop firms

If a prop firm is regulated by an official authority, it means it has passed checks and committed to certain rules. For example, some prop companies obtain broker licenses in offshore jurisdictions (Seychelles, Mauritius, Belize, etc.) or register as supervised entities in Europe. The firm Hola Prime, for instance, states it is regulated by the Mauritius Financial Services Commission, license no. GB24203729.

• Supervision and reporting: licensed firms must report regularly, meet capital‑adequacy rules, undergo audits, separate client funds, and comply with AML. The chance of outright fraud is lower, and in disputes a trader can complain to the regulator.
• Transparency: registration details, address, and T&Cs are public. It’s harder for them to disappear with client money because they’re on the regulator’s radar.
• Reputation and longevity: getting licensed is costly and time‑consuming. Those who do are usually building for the long term, not a quick rug pull.
• Less aggressive terms: regulated firms align their conditions with oversight requirements, don’t guarantee profits, and restrict leverage.

A license is not an absolute guarantee, but most major blow‑ups have involved unregulated entities.

Unlicensed prop firms

Most prop firms today are unlicensed. They register as ordinary companies (LLC, LTD) in offshore hubs or with minimal jurisdictional ties. What this means for a trader:

• No oversight and no recourse: the firm’s activity isn’t monitored, and there’s nowhere to escalate violations.
• Elevated fraud risk: impossible challenges, simulated trading, manipulated feeds.
• Aggressive marketing: pushy ads, “today only” offers, psychological pressure — all red flags.
• Unequal terms: skewed profit shares, hidden fees, lack of enforceable agreements.

The majority of headline failures — Funding Talent, MFF, TFF — involved non‑regulated structures.

✅ Conclusion: due‑diligence tips for traders

Prop trading can boost income, but it carries risks. Practical recommendations:

• Verify licenses and legal status: look for a license number on the site and confirm it with the regulator.
• Read the terms: benchmark against the market; check fees and rules.
• Check reputation: study independent reviews, company history, and any scandals.
• Review documentation and support: a clear rulebook, FAQ, and sensible support replies are positive signals.
• Be cautious with payments and data: use safe payment methods and share minimal personal information.
• Watch for scam signs: aggressive marketing, no legal docs, suspicious conditions.
• Learn from others’ experience: read case studies and ask the community.
• Trust but verify: keep records of chats and screenshots and be ready to file a complaint.

Prop firms can be legitimate businesses — or outright scams. Knowledge and caution are the key.

📝 Final word

Prop firms can either give a trader access to capital or become a source of losses. Learn to tell the difference: research the company, verify every fact, and never take promises at face value. Do that, and prop trading can be a real tool for growth — not disappointment. Good luck, and stay alert!