A prop firm (proprietary trading firm) is a company that puts its own money in the hands of traders. To get access, you pass a paid test (the "challenge") that checks you can manage risk. Once passed, you trade an account funded by the firm and keep a share of the profits (often 80 to 90%), called the "payout". You never risk more than the entry fees: the money you trade is not yours.
By Kyro, founder · Updated on Oct 19, 2026
Simple definition
- "Prop firm" = proprietary trading firm: a company that trades with its own capital, not clients' money.
- It recruits outside traders and entrusts them with part of that capital, in exchange for a profit split.
- You, the trader, don't bring the trading capital: you only pay a fee to prove your skill.
- In return, you keep the larger share of the profits you generate (the "profit split").
How it works, step by step
- You pick an account size (e.g. $50,000 or $100,000) and pay the challenge fee.
- You take the challenge: hit a profit target without breaching the loss limits (daily loss and total loss / drawdown).
- Once the target(s) are met, the firm opens a funded account for you.
- You trade that account within the rules; your gains build up.
- You request a payout: the firm pays your share of the profits (the split), by transfer or a payment solution.
The main prop firm models
- With evaluation (1, 2 or 3 phases): you prove your skill before being funded. This is the most common model.
- Without evaluation ("instant funding"): you're funded right away, but fees are higher and rules stricter.
- Forex / CFD: you trade currencies, indices, gold, sometimes crypto, usually on MT4/MT5, cTrader or TradingView.
- Futures: you trade futures contracts (indices, commodities) on platforms like NinjaTrader or Tradovate, with specific rules.
- Simulated or live account: many firms have you trade a simulated environment and pay payouts from their own funds. It's legal and common, but worth knowing.
Why prop firms exist (their business model)
Understanding how a prop firm makes money helps you tell the serious ones from the shady ones.
- Challenge fees: many applicants fail, and these fees are a big part of the firm's revenue.
- Profit sharing: on traders who succeed, the firm keeps its share (usually 10 to 20%).
- Some hedge or copy their best traders on real markets. A healthy firm lives mostly off winning traders, not only off those who fail.
- Red flag: a firm that piles on trap rules or delays payouts may rely too much on failures — hence the value of reviews and payout proof.
What it really costs
The advertised challenge price is not the real cost. You must add:
- The challenge fee (from a few tens to several hundred dollars depending on account size).
- Possible activation fees for the funded account, on top of the challenge.
- Resets if you fail and start again.
- Many refund the fee on the first payout: check firm by firm.
Risks and limits to know
- The real financial risk is limited to the fees paid: you can't lose more than your entry.
- The difficulty is real: most applicants fail the challenge, often because of the rules (daily loss, drawdown, minimum days, consistency rule).
- Some firms shut down: the niche moves fast, companies disappear. Favour those with a track record and payout proof.
- It's not a guaranteed salary: no payout until you trade profitably and consistently.
- Always read the rules BEFORE paying: that's where most lost accounts are decided.
Is it right for you?
- Yes, if you have a tested strategy, good risk management and discipline, but not the capital to trade big.
- Yes, if you want to be funded without risking your savings beyond the fees.
- No, if you're a complete beginner: learn and become profitable on a demo account before paying for a challenge.
- No, if you're looking for immediate, guaranteed income: that doesn't exist in trading.
On YourFunding, 59 prop firms are rated and compared.
Frequently asked questions
What is a prop firm in trading?
A company that provides its capital to traders who pass a paid test (the challenge). The trader uses the firm's money and keeps most of the profits, without risking more than the entry fee.
Is a prop firm legal?
Yes, it's a legal activity. Many firms have you trade simulated accounts and pay gains from their own funds, which is a widespread, allowed model. Caution is about the firm's seriousness (track record, reviews, payout proof), not the legality of the concept.
How much does a prop firm trader earn?
There is no guaranteed income. A funded trader earns their share (the split, often 80 to 90%) only on the real profits they generate. Many never get a payout; a consistent minority live off it.
Do you have to deposit money with a prop firm?
No trading capital to deposit. You only pay the challenge fee (and sometimes an activation). The money you trade belongs to the firm.
Which is the best prop firm to start with?
One with clear rules, a track record and payout proof, and a challenge that isn't overly punishing. Compare scores and reviews rather than following ads.
Challenge, funded account, payout: what's the difference?
The challenge is the paid test to pass. The funded account is the one the firm then entrusts to you. The payout is the payment of your share of the profits.