What is a Prop Firm?
Everything you need to know about proprietary trading firms, evaluations, and funded trading
What is a Proprietary Trading Firm?
A proprietary trading firm (prop firm) is a company that provides traders with capital to trade financial markets. Instead of trading your own money, you trade the firm's capital and share the profits.
Modern online prop firms typically require traders to pass an evaluation (or "challenge") before receiving funded capital. You pay a fee to take the evaluation, and if you meet the profit targets while following the rules, you get access to a funded account.
The appeal is simple: trade larger size without risking your own capital. A trader who passes a $100,000 account challenge can trade with $100,000, keeping 80-90% of profits while only risking the evaluation fee.
How Prop Firms Work
Pay for Evaluation
Choose an account size and pay the evaluation fee ($100-$1000+). You receive a demo account with rules to follow.
Pass the Challenge
Hit the profit target (usually 8-10%) while staying within drawdown limits. Most firms have 1-2 evaluation phases.
Get Funded
Receive a funded account with real capital. Trade profitably, request payouts, and keep 70-90% of profits.
Typical Evaluation Rules
While each prop firm has different rules, these are common requirements:
Account Sizes & Costs
| Account Size | Typical Eval Fee | Profit Target | Max Drawdown |
|---|---|---|---|
| $10,000 | $100-150 | 8-10% | 10-12% |
| $25,000 | $150-250 | 8-10% | 10-12% |
| $50,000 | $250-350 | 8-10% | 10-12% |
| $100,000 | $400-600 | 8-10% | 10-12% |
| $200,000 | $800-1200 | 8-10% | 10-12% |
Fees and rules vary by firm. Many offer discounts during promotions.
Pros & Cons of Prop Firms
Advantages
- +Trade larger size - Access $10K-$400K+ without risking your own capital
- +Limited downside - Maximum loss is the evaluation fee, not the full account
- +Profit potential - Keep 70-90% of profits you generate
- +Forces discipline - Rules enforce proper risk management
- +Scale opportunity - Multiple accounts and scaling plans available
Disadvantages
- -Evaluation costs - Fees add up if you fail multiple times
- -Strict rules - One bad day can end your account
- -Pressure - Rules can cause stress and suboptimal trading
- -No equity ownership - You don't own the capital, just access it
- -Industry risks - Unregulated industry, some firms have failed
Who Should Consider Prop Firms?
Consistent Traders
If you're already profitable but lack capital, prop firms let you scale your proven strategy.
Disciplined Traders
If you can follow strict rules and manage risk well, you'll thrive in the prop firm environment.
Developing Traders
Consider practicing more before paying for evaluations. Demo trading is free - evaluations are not.
Gamblers
If you can't follow rules or chase losses, prop firms will be expensive lessons.
Overleveraged Traders
If you normally risk too much per trade, you'll consistently fail evaluations.
New Traders
Learn to trade profitably first. Prop firm pressure isn't ideal for beginners.
Important Considerations
Before paying for a prop firm evaluation, understand these points:
Tips for Prop Firm Success
Frequently Asked Questions
What is a prop firm?
A prop firm (proprietary trading firm) provides traders with capital to trade in exchange for a share of profits. Traders don't risk their own money beyond an evaluation fee. After passing an evaluation, traders get access to a funded account and keep 70-90% of profits.
How do prop firm evaluations work?
Evaluations test your trading skills before giving you real capital. You trade a simulated account with specific rules (profit target, max drawdown, daily loss limit). Pass the evaluation and you get a funded account. Most evaluations have 1-2 phases and cost $100-500+ depending on account size.
What profit split do prop firms offer?
Most prop firms offer 70-90% profit splits to traders. Some firms start at 80% and scale up to 90% based on performance. A few firms offer up to 100% on the first payout. The firm keeps 10-30% as their share for providing the capital.
Are prop firms legitimate?
Many prop firms are legitimate businesses, but the industry is unregulated. Established firms like FTMO, Topstep, and The5ers have track records of paying traders. Research any firm thoroughly - check reviews, payout proofs, and how long they've been operating before paying for an evaluation.
Can you make a living trading prop firm accounts?
Yes, some traders make a full-time income trading prop firm accounts. However, it requires consistent profitability and discipline. Many traders manage multiple funded accounts to increase earning potential. The challenge is passing evaluations and staying within the rules long-term.
What happens if you lose money on a funded account?
If you hit the maximum drawdown limit, you lose the funded account. You don't owe the prop firm money, but you'll need to purchase a new evaluation to try again. This is why risk management is critical - losing the account means starting over.
Information accurate as of December 2025. Verify current rates and terms with providers directly.
Continue Learning
Risk Disclosure: Trading involves substantial risk of loss and is not suitable for all investors. This content is for educational purposes only and does not constitute financial advice.
Last updated: December 2025