A prop firm (proprietary trading firm) is a company that provides traders with capital to trade financial markets. Traders use the firm's money instead of their own, and in return, they share a portion of their profits with the firm, typically keeping 70-90% of what they earn.

How does a prop firm work?

Prop firms work through a profit-sharing model. First, traders complete an evaluation phase where they must meet profit targets while following risk rules. If they pass, they receive a funded account. Profitable trades result in payouts split between the trader and firm, commonly 80/20 in favor of the trader.

How much can you make with a prop firm?

Earnings with prop firms vary based on your skill level and funded account size. With account sizes ranging from $10,000 to $400,000+, and profit splits of 70-90%, successful traders can earn anywhere from a few hundred dollars to tens of thousands monthly.

Are prop firms legitimate?

Many prop firms are legitimate and have paid out millions to traders. However, not all firms are created equal. Look for firms with verified payout histories, transparent rules, positive trader reviews, and clear terms of service before joining.

What is a prop firm evaluation or challenge?

A prop firm evaluation (also called a challenge) is the assessment phase where traders must demonstrate their skills. Typically, you need to reach a profit target (e.g., 8-10%) within a set timeframe while staying within drawdown limits. Passing the evaluation grants access to a funded account.

Do you need experience to join a prop firm?

While no formal experience is required, having trading knowledge and a consistent strategy is essential. Prop firms have strict risk management rules, so beginners should practice on demo accounts before attempting evaluations.

Guide

What Is a Prop Firm? Complete Guide to Proprietary Trading

Published on June 8, 2025

In recent years, proprietary trading firms, or "prop firms," have gained massive attention from retail traders looking to access significant capital without risking their own money. But what exactly is a prop firm, how do they work, and what should you know before joining one? In this article, we'll break it down in simple terms.

What Is a Prop Firm? A proprietary trading firm provides traders with access to company capital to trade financial instruments like forex, futures, stocks, or crypto. In return, traders split a portion of their profits with the firm. Unlike traditional trading where individuals use their own money, prop firm traders use the firm’s funds and follow specific risk management rules.

How Do Prop Firms Work?

Prop firms operate on a profit-sharing model. Here’s how the process usually goes:

Evaluation Phase: Traders undergo an evaluation (also known as a challenge or assessment). This often involves meeting profit targets within a set time frame while adhering to drawdown and risk rules.
Funding: If the trader passes the evaluation, they are given a funded account with virtual capital, which they use to trade.
Profit Split: Profitable trades result in a payout, typically split between the trader and the firm (commonly 70/30 or 80/20 in favor of the trader).
Scaling: Some firms offer scaling plans, allowing traders to manage more capital over time based on performance.

Types of Prop Firms

Forex Prop Firms: Specialize in forex trading.
Futures Prop Firms: Focus on futures contracts, often with platforms like NinjaTrader or Tradovate.
Stock Prop Firms: Allow trading in equities, though these often require licenses.

Benefits of Trading with a Prop Firm

Access to large trading capital
Limited personal risk (only evaluation fees are at stake)
No need to use your own funds
Support, education, and structured risk management

Risks and Considerations

Evaluation fees can add up if challenges are repeatedly failed
Strict rules and restrictions (drawdowns, daily loss limits)
Payouts may be delayed or subject to verification
Not all prop firms are legitimate—some have poor reputations or unclear policies

How to Choose the Right Prop Firm

Look for transparency in rules and payouts
Check trader reviews and independent audits
Understand the trading platform and products offered
Compare evaluation difficulty, scaling plans, and profit splits

Conclusion

Prop firms can be a great way for disciplined and skilled traders to scale their trading without risking large amounts of personal capital. However, not all firms are created equal. Research thoroughly, understand the rules, and start with firms that have solid reputations. With the right approach, prop trading can be a valuable path to financial growth.