What is a Prop Trading Firm?

Ever wondered how traders manage huge accounts without risking their own money? 

That’s where proprietary trading firms come in. A prop firm funds skilled traders, letting them trade with company capital instead of their own. 

In return, traders share a percentage of their profits with the firm.

This setup is a win-win – traders get bigger opportunities without financial risk, while the firm profits when traders succeed. 

But what is a prop trading firm? How do these firms actually work? 

What’s the catch? And how do you find the best prop firm to trade with? Let’s dive in and find out!

What is a Proprietary Trading Firm? – How Do Trading Firms Work?

Prop trading firms fund traders in exchange for a profit split, giving traders the ability to control much larger positions than they could with personal capital. 

They operate under a simple but effective business model that balances risk, profit, and trader evaluation.

Providing Capital to Traders

The main role of a prop firm is to fund traders with company capital, allowing them to trade on a much larger scale than they could with personal funds.

• Traders get access to accounts ranging from thousands to millions of dollars.
• The firm takes on the financial risk while the trader focuses on executing profitable trades.
• This model eliminates the need for traders to invest large personal deposits, making it accessible to more traders.

Profit Sharing Model

Prop trading firms profit alongside traders, making their money through profit-sharing agreements. 

Instead of charging traders excessive fees or commissions, they take a percentage of the trader’s profits in exchange for providing the capital.

A trader’s profit split varies by firm. 

Most firms offer splits ranging from 70/30 to 90/10, meaning the trader keeps 70% to 90% of their earnings while the firm takes the remaining percentage as compensation for supplying the funds.

This structure benefits both parties:

• If the trader wins, both the firm and the trader make money.
• If the trader loses, they do not owe the firm any money – the firm simply revokes their funded account.

Evaluation Process & Getting Funded

To ensure traders are skilled and disciplined, most prop firms require them to pass an evaluation process before receiving a funded account. 

This serves two important purposes:

1. It allows the firm to assess a trader’s strategy, risk management, and consistency before allocating funds.
2. It helps the firm filter out inexperienced traders who may take reckless risks with company capital.

The evaluation typically consists of a trading challenge with specific rules, including:

• Profit targets – Traders must achieve a minimum profit goal.
• Risk limits – Daily loss limits and maximum drawdowns must be respected.
• Consistency requirements – Some firms require traders to trade for a certain number of days to ensure they are not taking excessive risks on a single trade.

Risk Management & Trading Rules

Since prop firms provide traders with company funds, they enforce strict risk management policies to protect their capital. 

These rules ensure that traders remain disciplined and do not engage in reckless trading behavior that could lead to excessive losses.

The most common risk management rules include:

1. Daily Loss Limits – If a trader loses too much in a single day, the firm may restrict further trading for that session.
2. Maximum Drawdown – Firms set a limit on how much a trader can lose overall before they lose access to their funded account.
3. Position Sizing Rules – Some firms restrict leverage or enforce maximum lot sizes to prevent overexposure.

Additionally, some firms have restrictions on certain trading strategies, including:

• High-frequency scalping – Some firms do not allow ultra-short-term trades.
• Martingale strategies – Doubling down on losing trades is often prohibited.
• Trading during major news events – Some firms restrict trading during high-impact news releases to prevent excessive volatility risks.

Benefits of Trading with a Prop Firm

Many traders prefer prop firms over personal trading accounts because they eliminate financial risk while offering access to greater capital. 

Here’s why they are such a game-changer.

Access to Larger Capital

One of the biggest benefits of joining a prop firm is the ability to trade with significantly more capital than a personal account would allow.

• More capital amplifies profit potential, allowing traders to earn more per trade.
• Traders can participate in high-value markets without needing huge personal deposits.
• The ability to scale up accounts over time means long-term growth potential.

No Personal Financial Risk

Unlike retail trading, where traders risk their own money, prop trading removes personal financial liability.

• Traders do not lose personal funds if they hit a drawdown limit or break a trading rule.
• If a trader performs poorly, they lose access to their funded account, but they don’t owe the firm any money.
• This structure allows traders to focus on executing smart trades instead of worrying about financial loss.

No Need for Personal Brokers or High Deposits

This eliminates the hassle of finding a reliable broker, dealing with high commissions, or needing a large initial deposit to start trading at a competitive level.

• Many retail traders struggle with high broker fees and large margin requirements.
• Prop firms provide professional-grade liquidity, advanced trading platforms, and better trading conditions than most individual accounts.
• Some firms even cover data feed costs and platform fees, making it even more cost-effective.

Things to Consider Before Choosing a Prop Firm

Not all prop firms are created equal. 

Some offer better conditions, while others have strict rules or hidden fees. Here are the key factors to consider before choosing the right one.

Profit Splits & Payout Structure

One of the most important factors when choosing a prop firm is how profit sharing and payouts are structured. 

Since traders work with the firm’s capital, they share a portion of their profits with the firm. 

However, not all firms offer the same profit splits or payout flexibility.

• Some firms take a larger share, leaving traders with less earnings.
• The best firms allow traders to keep up to 90% of their profits, ensuring that skilled traders are fairly rewarded.
• Fast, consistent payouts are crucial – look for a firm that processes withdrawals quickly so you can access your funds without delay.

Evaluation Fees & Refund Policy

Before receiving a funded account, traders typically need to pass an evaluation process, which often requires an entry fee. 

This fee serves as a way for firms to filter out unqualified traders and cover operational costs. However, not all firms handle evaluation fees the same way.

• Some firms charge high evaluation fees but don’t offer refunds, meaning traders who fail the challenge lose their money entirely.
• The best firms have reasonable fees and provide refund options for traders who successfully pass the evaluation.
• Refundable fees make the evaluation risk-free for skilled traders, as they receive their money back once they qualify for a funded account.

Trading Conditions & Restrictions

Every prop firm has its own set of trading rules that determine how traders can operate within their funded accounts. 

Some firms offer flexibility, while others impose strict restrictions that may limit a trader’s strategy.

• Certain firms restrict scalping, swing trading, or holding trades overnight, which can impact traders who rely on these strategies.
• A good prop firm supports different trading styles, allowing traders to use their preferred methods without unnecessary limitations.
• Flexibility is key – look for a firm that lets you trade comfortably within reasonable risk parameters.

Best Prop Trading Firms for Traders

While there are many prop firms available, some stand out as better choices due to their fair profit splits, low fees, and trader-friendly policies.

1. FunderPro – Best Overall for All Traders

FunderPro is a top choice for traders looking for a flexible and fair prop firm. Unlike many firms that rush traders through an evaluation process, FunderPro allows traders to take their time and qualify at their own pace.

👉 Get Started Here

• No time limits on evaluations – Trade without pressure, allowing you to focus on strategy and consistency.
• High profit splits – Traders can keep up to 90% of their profits, making it one of the most rewarding payout structures in the industry.
• Refundable challenge fees – If you pass the evaluation, you get your fee back, making it a risk-free opportunity for skilled traders.

2. Apex Trader Funding – Best for Futures Traders

For traders who specialize in futures markets, Apex Trader Funding is one of the best options available. 

This firm is known for its low-cost evaluations, fast payouts, and straightforward funding process.

👉 Get Started Here

• Low-cost evaluation fees with quick payouts – Apex Trader Funding makes it affordable to get started, and traders receive their earnings quickly once funded.
• No monthly fees once funded – Unlike some firms that require ongoing payments, Apex Trader Funding does not charge traders recurring fees after they pass the evaluation.
• Ideal for futures traders – If you trade futures and want a simple, effective funding solution, Apex Trader Funding provides a hassle-free process designed for your trading style.

Frequently Asked Questions

Conclusion

A prop trading firm is a game-changer for traders who want to access large capital without risking their own money. 

Prop trading firms provide funding, allowing traders to operate with company capital and share in the profits.

The key to success is choosing the right firm – one that offers fair profit splits, transparent fees, and trader-friendly policies. 

FunderPro and Apex Trader Funding stand out as two of the best, making them ideal for traders looking to scale their careers without financial risk. 

If you’re a skilled trader seeking bigger opportunities, a prop trading firm could be the perfect solution!