Commission Structures for Prop Trading
Designing commissions for prop trading requires thinking about the purchase funnel, not the trading activity. Unlike Forex IBs who earn per lot traded, prop trading partners earn based on customer purchases. This simplifies the model but introduces its own design decisions.
Flat Amount vs. Percentage
You have two primary options for structuring partner commissions:
| Model | Example | Pros | Cons |
|---|---|---|---|
| Flat per purchase | $20 per challenge sold | Simple, predictable | Does not scale with challenge price |
| Percentage of sale | 15% of challenge fee | Scales with price | Revenue varies by challenge size |
Percentage-based commissions are more common in prop trading because challenge prices vary significantly. A $50,000 account challenge might cost $300, while a $200,000 account costs $1,000. A flat $20 commission makes sense at $300 but is far too low at $1,000. A 10% commission adjusts automatically.
What Events Trigger Commission?
Unlike iGaming or Forex where there is one clear acquisition event, prop trading has multiple purchase events. You need to decide which ones generate partner commissions:
- Initial challenge purchase: The first buy. This should always trigger commission.
- Challenge resets: When a trader fails and pays to reset. Most programs pay commission on resets since it is a new purchase.
- New challenge purchases: When a trader buys a different challenge (different account size). Should trigger commission.
- Repeat same challenge: When a trader buys the same challenge again after failing. Should trigger commission.
- Funded account activation: Some firms charge a fee when a trader passes and activates their funded account. Commission is optional here.
Pay commission on every purchase event (challenges, resets, new purchases). This aligns partner incentives with your revenue and makes the program more attractive. Partners will actively encourage their audience to retry after failing, which drives reset revenue.
Tiered Commissions
Like other verticals, tiered structures reward high-performing partners:
| Monthly Sales | Commission Rate |
|---|---|
| 1-20 challenges | 10% |
| 21-50 challenges | 12% |
| 51-100 challenges | 15% |
| 100+ challenges | 18%+ |
Discount Code Economics
Most prop trading partners want to offer their audience a discount code (e.g., 10% off a challenge). You need to decide who absorbs the discount cost: the firm, the partner, or a split.
- Firm absorbs: The partner earns full commission and the firm covers the discount. This maximizes partner motivation but reduces your margin.
- Partner absorbs: The discount is deducted from the partner commission. The partner earns less per sale but drives more volume.
- Split: The discount is shared between firm and partner. For example, on a 10% discount, the firm covers 5% and the partner commission is reduced by 5%.
The most common approach is firm-absorbed discounts with a cap (e.g., up to 10%). This is a marketing cost that drives volume and keeps partners motivated. Track the ROI of discount codes to ensure the additional volume justifies the margin reduction.
Key Takeaways
- Percentage-based commissions work better than flat amounts because challenge prices vary.
- Pay commission on all purchase events: initial challenges, resets, and repeat buys.
- Tiered structures reward top partners and incentivize growth.
- Decide who absorbs discount code costs: firm, partner, or a split.
Explore Further
Key terms and tools related to this lesson. Deepen your understanding and see how Track360 supports these concepts.
Funded Account
A trading account provided by a proprietary trading firm to a trader who has passed an evaluation challenge, allowing them to trade with the firm capital under defined risk rules.
Affiliate Program
A structured partnership where a business rewards external partners (affiliates) for driving traffic, leads, or conversions through tracked referral activity.
Affiliate Manager
An affiliate manager is the operator-side role responsible for recruiting, onboarding, managing, and optimizing affiliate partnerships within a partner program.
Publisher
A publisher is an individual or company that promotes an advertiser's products or services through an affiliate program in exchange for commissions on conversions they drive.