A prop firm (proprietary trading firm) gives access to a trading account of a set size, in exchange for a fee and compliance with rules. This guide describes the pattern found at many firms that sell "challenges". It describes no firm in particular: rules, prices and vocabulary change from one firm to another, and only the terms published by the firm concerned prevail.
The pattern in five steps
- The trader picks an account size and pays a fee to access an evaluation (the challenge).
- They trade through one or more phases, following risk rules and reaching a target.
- If they pass, the firm assigns a so-called "funded" account.
- Profits made on that account are shared according to a percentage set by the firm.
- The trader requests a withdrawal (payout) once the payout conditions are met.
Each step has its own conditions, which determine what the trader pays and what they can withdraw.
Step 1: the paid challenge
The fee is the price of access to the evaluation. It is not a deposit: it is not your trading capital. The firm's terms state whether the fee is refunded, in which case, and when. Depending on the firm, there may also be reset fees (a new attempt after a failure), funded-account activation fees or recurring subscriptions. Add them up before comparing: see how to choose a prop firm.
Step 2: the evaluation phases
An evaluation has one or more phases. Each phase generally sets:
- a profit target to reach;
- loss limits: an overall drawdown and, often, a maximum daily loss;
- possibly a minimum number of trading days, a time limit, a consistency rule or restrictions around economic announcements.
Breaching a loss limit generally ends the evaluation account. Starting again costs a new fee. These rules are detailed in the rules explained guide.
Step 3: the funded account
The funded account is the status obtained after the evaluation. The word "funded" names a status, not the nature of the account: what the firm actually funds (real capital, a simulated account, or something else) is stated, or not, in its terms. That is the subject of the simulated or live account guide.
The risk rules of the evaluation phase often keep applying to the funded account, sometimes modified. Again, read the terms.
Profit split and payouts
The profit split sets the share of profit going to the trader and the share kept by the firm. The percentage is in the firm's terms; it may change over time or with a scaling plan.
A payout is not automatic. Depending on the firm, the terms may require:
- a minimum profit or minimum balance;
- a minimum number of trading days, or compliance with a consistency rule;
- a delay between two payouts and a processing delay;
- an identity check (KYC) and a specific payment method;
- no rule violation during the period concerned.
The firm may refuse or delay a payout it considers contrary to its terms. The risks guide covers this point.
Where the firm's money comes from
Not every firm publishes its business model. What follows describes possible sources, not what a given firm does:
- fees paid by candidates (challenge, reset, subscriptions);
- the share of profits kept on funded accounts;
- depending on the firm, the result of its own trading or of replicating traders' positions.
Two consequences you can check by reading alone:
- If revenue comes from candidates' fees, the firm's interest in selling challenges and the candidate's interest in passing do not necessarily coincide.
- A firm that does not say where its money comes from should not be taken on trust: that is one item of the selection checklist.
Four questions before paying
- What does the firm fund: a simulated account or a live account?
- What do several attempts cost in total?
- What conditions must be met to withdraw a profit?
- What does the firm say about changing its rules?
If the terms do not answer one of these questions, ask it in writing to support and keep the reply.
What this mechanism does not guarantee
- No result: passing a challenge says nothing about future gains.
- No payment: a payout depends on the terms and on the firm's decision.
- No lifespan: a firm can change its rules or stop operating.
These points are repeated in the risk warning. To compare firms on sourced, dated facts rather than on their sales pages, see the prop firm list and the methodology. Technical terms are defined in the glossary.
The proproaster editorial team