What are prop trading firms?

1. What is a prop trading firm?

Proprietary ("prop") trading firms give traders access to larger accounts in exchange for following specific rules and sharing a portion of profits. Instead of risking only your own capital, you trade on behalf of the firm under a defined risk framework.

2. How funded accounts work

Modern online prop firms usually follow a similar pattern: you pay an evaluation fee, pass a challenge under set rules, and then graduate to a funded or "funded-style" account where you can request payouts.

• Phase 1: Reach a profit target without violating drawdown or daily loss limits.
• Phase 2 (if applicable): Repeat with a smaller target to confirm consistency.
• Funded phase: Trade under similar rules and request payouts on a regular schedule.

3. How prop firms make money

Prop firms typically have several revenue streams: evaluation fees, a share of profitable trader performance, and in some cases volume-related rebates from liquidity providers. Understanding this helps you evaluate how sustainable a firm's model might be.

• Healthy models combine fee income with real trading or hedging of order flow.
• Red flags include constantly changing rules, aggressive marketing, and unclear ownership.

4. Advantages and risks

The main benefit is access to more buying power with limited personal downside. However, prop trading is not a shortcut to profitability and carries its own risks.

• Pros: lower personal capital requirement, structured risk rules, clear targets.
• Cons: strict rules, potential for sudden policy changes, psychological pressure.

5. Is a prop firm right for you?

Prop firms can make sense if you already have a validated strategy and basic risk management. They are a poor fit if you are still learning how markets move or treating the challenge as a lottery ticket.

If you decide to explore further, start by browsing the list of prop firms or jump to the guide on how prop firm challenges work.

Frequently asked questions

Are prop trading firms legal? Most online prop firms operate legally under their local regulations, but they are not brokers or investment advisers. Always check the firm's registration, terms, and country restrictions.

Do prop firms use real or demo accounts? Many firms use demo or simulated accounts internally while paying out based on your results. What matters most is that payouts are honoured and rules are clear.

Can beginners use prop firms? Beginners are allowed to sign up, but prop firms are not a shortcut to learning. It is usually better to prove profitability on a small personal account first.

Compare prop trading firms

When you are ready to explore specific companies, use the comparison tools on Prop Firm Compass to see rules, platforms, and evaluation models side by side.