Kvekhdria Pyrnathos 
Venturing into the crypto domain can be a wholesome experience, but it is very different from the ordinary ‘quick-rich’ schemes. Of course, you can win a chunk of profit that can be very rewarding, but whether you will get it depends on a wide range of variables. While you try to compare the best crypto prop firms, a few key aspects should be kept in purview.
Initial Overview of the ‘Challenge’ Mode
You will have to start at a core choice, whether you want to go with an A-book agency or a B-book prop firm. A fair risk assessment of the two types should be conducted before you decide on your role in the crypto economy. Hybrid prop firms also operate in the strategic space, where you are relegated to the A-book or the B-book, depending on how profitable you are to the business.
Most of the hybrid firms function in the instant funding mode, which minimizes direct personal risk even when you are trading with a substantial amount. Also, you might be required to pay a nominal amount to partake in an initial challenge that should determine whether you are eligible to receive instant funding.
This ‘challenge’ mode is extremely critical because failing it would mean you lose your deposit, and your account is terminated. So, you should be aware of the top 5 fatal errors to avoid when you are considering how to start crypto prop trading.
The First Mistake: Ignoring the ‘Relative Drawdown’ Paradox
Drawdown is a technical crypto term that measures the decline in your trading account from the highest point or the peak to the lowest level, or the ‘trough,’ over a specified window. The drawdown is defined as a percentage value and it represents the financial risk or the “pain” of the investor before the crypto asset recovers the previous peak value.
Types of Drawdowns Explained
Drawdowns are of two types, namely the static drawdown and the relative drawdown. In the static mode, the limit is set on a ‘hard floor’ which does not shift. The relative drawdown is much more fast-track and is a staple in the instant funding game.
The ‘trailing goalpost’ moves up as your balance grows, which means that the ‘buffer’ also narrows down, creating a high-risk venture. For example, if you are operating at a crypto trading prop firm on a 10% trailing drawdown on a $100,000 trade, and make a profit of $10,000, the drawdown ‘trails’ from $90,000 ($100,000 minus 10%) to $99,000 ($110,000 minus 10%).
So, if you are ignoring the relative drawdown trap, your account balance will quickly fall below the 10% limit, and you will lose the challenge. The key here is to target lesser profits at a time, instead of going all out for the big kill!
The Second Mistake: Over-Leveraging Your Account During High Volatility
The inherent volatility of crypto should be considered distinctively, without any prejudices you might have gathered from forex trading. A 10X leverage on a forex pair like EUR/USD is much different from a 10 x leverage on BTC. So, if you are falling for the ‘standard’ leverage sizes on altcoins during liquidations or news events, a single ‘wick’ against the position can inevitably trigger the daily loss limits.
The solution in this case is to switch over from leverage-based sizing to volatility-based sizing. To be sure, you should use a position size calculator to ensure that no single trading amount risks more than 0.5% to 1% of the total account equity.
The Third Mistake: Engaging in Revenge Trading after a ‘Paper Loss’
Let’s face it! Crypto trading is not that different from gambling at the core, so the psychological impact of losing money also impacts your performance on the trading platform. Losing the challenge phase can make you go for revenge trading, or the next challenge, to see if you can succeed this time! However, this psychological shift can cause you to make emotional decisions rather than taking calculated risks.
You might insist on following the same strategy you followed in the previous challenge, believing that this time around, you will not fail the task. This continues in a loop, and if you hit the daily loss limit, your account can get terminated very quickly.
The B-Book is Purposed on an Absolute Conflict of Interest
The ‘Evaluation Clock’ system creates artificial pressure because traders may feel that they should ‘make it back’ before the day ends, resulting in chaotic, unplanned entries. Plus, to make matters more complicated, you must realize that your loss is the gain of the instant funding prop firm, which will strategically rig the system to work against you.
This is a typical scenario when you select the B-Book prop firm, and even the top trader must work against 99.99% odds to score a profit! To play it relatively safe, you will need to implement the ‘two-strike rule’, which means that if you lose two trades in a row, you should consider the terminal shutdown at least for the day. Instead of focusing on how much money you could make, you should consider the opposite: how much loss you can undertake!
The Fourth Mistake: Not Having a Crypto-Specific News Strategy
Crypto movements operate on various variables, such as SEC filings, whale movements, and exchange hacks. You should be careful about tracking high-impact news events when you have an open trade. The best solution is to hard-close the positions at least 15-18 minutes before the major macro data points come into action.
By maintaining a dedicated crypto calendar, you can track CPI releases, ETH upgrades, or Mt. Gox Distributions so that you can make informed choices. Compare the best crypto prop trading firms to find out whether they have a No-News policy.
Frequently Asked Questions
- Should I take a B-book challenge?
- The B-book challenge is the toughest one because of the absolute counterparty risk. The B-book firm strategically works against the trader so that they do not have to pay out the winning amount, while you lose your challenge money.
- How can the trader make profits if the system is rigged against him?
- It’s all data! Even the B-book firm cannot deny your victory if you have interpreted the data all too correct to mark a win! For the top trader, even the B-book is not a deterrent, but something to go about winning, while the losers pay for his profits from their accounts.
- Why should I read the terms and conditions page before creating my account?
- Of all things, you should read the T&Cs before selecting the prop firm crypto trading venture, just to be sure whether they have a system of valid payouts of winning amounts, instead of a “rug-pull.”
