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If you want to become a trader or grow your trading career, you've likely come across something called a proprietary trading firm, or prop firm. These firms offer a unique opportunity: they let you trade with their money instead of your own.
Sounds appealing, right?
But before you jump in, it's important to understand how prop firms work, what they offer, and what they expect in return. This article will give you a clear, realistic overview of what prop trading is, how it works, and what you need to consider before you sign up.
What Is a Prop Firm?
A proprietary trading firm is a company that uses its own capital to trade financial markets. It doesn’t manage client accounts like a hedge fund or investment advisor. It generates profits from market movements with their internal funds.
In recent years, many prop firms have opened their doors to retail traders. They offer a chance to trade their money after the trader passes an evaluation process. In return, the firm takes a share of your profits.
How Does Prop Trading Work?
The basic idea is simple:
- You apply to the prop firm.
- You take a challenge or evaluation.
- If you pass, the firm funds you with a simulated or real account.
- You trade their capital and split the profits.
For example, a firm might offer you a $50,000 trading account after you pass a challenge that proves you can manage risk and stay profitable. Once you're “funded,” you can start earning a share of the profits, often around 70% to 90%, while the firm keeps the rest.
Types of Prop Firms
Prop firms come in different forms, and it is important to understand the two main categories of them.
1. Traditional Prop Firms
Traders usually work in-house at an office. You often receive intensive training, mentorship, and access to firm capital. The firm may pay a salary or a draw (advance against future profits). It usually requires prior experience and a trader shall pass a complex hiring process.
2. Retail (Online) Prop Firms
They operate remotely and accept traders worldwide. They use a challenge-based model to assess new traders. There is no salary, only profit splits.
Popular examples: FTMO, Topstep, MyForexFunds (before shutdown), Apex Trader Funding, and Supertrade
This article focuses on online retail prop firms, which are more accessible to the general public.
The Prop Firm Evaluation Process
Most online prop firms apply an evaluation process where they test your skills. If you pass, they give you a funded account.
If you fail to follow the rules, you can lose your funded account.
What Can You Trade?
Prop firms typically allow trading in:
- Forex
- Indices (like S&P 500 or NASDAQ)
- Commodities (like gold or oil)
- Crypto (with some firms)
- Futures (mainly for futures-specific prop firms) Each firm will have its own list of allowed instruments and trading platforms (MetaTrader 4/5, TradingView, NinjaTrader, etc.).
