Prop firm
A prop firm is a company that lets traders trade its capital and shares the profits with them. Access is usually granted after passing a paid evaluation called a challenge.
How it works
Prop is short for proprietary trading, meaning trading with the firm's own money. Traditional prop firms hire traders as staff. Online prop firms work differently: you pay a fee, pass an evaluation with profit and drawdown rules, and get a funded account with a profit split, often 70–90%.
It helps to understand the business model. Many online prop firms run simulated accounts, and a large share of their income comes from challenge fees, which most traders do not pass. That is not automatically a scam, but it means the firm's interests and yours are not fully aligned.
Prop firms are usually not brokers and are often not regulated as financial companies. Rules, payouts and the firm itself can change at any time, so read the terms and look for evidence of real payouts before you pay.
You pay $100 for a challenge on a $10,000 account. You pass, then make 5% on the funded account, which is $500. With an 80% split you receive $400. If you break the drawdown limit, the account is closed and the fee is not refunded.
The beginner mistake is treating a prop firm as a way to get big capital with no risk and buying challenge after challenge. The fees are real money you lose with every failure. First prove to yourself on a demo or a small live account that you can keep risk inside the firm's rules, and only then pay.
Questions and answers
What is a prop firm in simple terms?
It is a company that lets you trade its money and keeps part of the profit. You usually have to pass a paid test first.
Are prop firms a scam?
Not all of them, but understand the model: many earn from evaluation fees and trading often happens on simulated accounts. Check the terms, payout history and reputation.
Can you lose money with a prop firm?
Your own money at risk is the challenge fee. If you break the rules, the account is closed and the fee is usually not returned.
Related terms
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Updated: 2026-10-19