What Are Prop Firms?

Learn how proprietary trading firms work, why traders join them, and what to consider when choosing the right firm to grow your trading career.

What is a Prop Firm?

A prop firm (short for proprietary trading firm) is a company that provides traders with access to its own capital. Instead of trading your personal money, you trade the firm's funds. In return, profits are usually split between you and the firm.

Typical profit splits range from 70/30 to 80/20, favoring the trader.

How Do Prop Firms Work?

• Funding: Traders apply to a prop firm and must pass an evaluation process.
• Evaluation: You prove your trading skills under specific rules, like reaching profit targets without exceeding maximum drawdowns.
• Profit Sharing: Once you pass, you trade live capital and split the profits according to the firm's terms.

Why Do Traders Join Prop Firms?

• More Buying Power: Access larger trading accounts without needing large personal savings.
• Lower Personal Risk: You trade with firm capital, not your own.
• Professional Environment: Some firms offer training, mentorship, and access to advanced trading tools.

Types of Prop Firms

• Remote Prop Firms: Trade from anywhere using your own computer and internet connection.
• In-House Prop Firms: Work from the firm's physical office, often in major financial centers.

What to Look for in a Prop Firm

• Clear Rules: Transparent evaluation process and trading guidelines.
• Good Reputation: Research reviews and testimonials from other traders.
• Fair Profit Split: Ensure the terms are reasonable and benefit you.
• Reasonable Fees: Some firms charge evaluation fees — make sure they are fair and transparent.

Popular Prop Firm Examples

• FTMO
• Topstep
• The5ers

Each firm has its own conditions, so research carefully before applying.

Important Tips for Success

• Follow the Rules: Breaking the firm's rules can result in losing your funded account.
• Manage Risk: Always use stop-losses and respect risk limits.
• Stay Consistent: Firms prefer steady, controlled profits over wild swings.

Final Thoughts

Prop firms offer a great opportunity for talented traders to scale up without risking their own savings. With strong discipline, solid strategies, and good risk management, trading with a prop firm could help you reach the next level in your trading career.

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