What Is a Prop Firm? How Funded Trading Actually Works
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A proprietary trading firm ("prop firm") gives traders access to a funded account in exchange for a share of the profits. You trade the firm's capital allocation instead of your own savings; in return, the firm keeps a cut, typically 10–20% of what you make, with profit splits at most firms in the 80–90% range.
The modern retail version works differently from a classic trading desk. You don't get hired. You buy an evaluation (often called a challenge), prove you can trade within the firm's risk rules, and only then receive a funded account.
The evaluation model
Almost every online prop firm sells one of four program types:
- 2-step: the industry standard. Pass two phases with separate profit targets (commonly around 8–10% in phase one and 5% in phase two) before funding. FTMO, founded in 2015, popularized this format.
- 1-step: a single phase with one profit target, usually with tighter drawdown rules to compensate.
- 3-step: three cheaper, easier phases: lower cost per attempt, longer path to funding.
- Instant funding: no evaluation at all. You pay more upfront and start on a funded account immediately, usually with a lower starting profit split.
Pricing scales with account size. As a reference point, a 100K evaluation at a major CFD firm runs roughly €400–€600 (FTMO's 100K challenges were €499–€599 as of mid-2026), while futures firms like Topstep sell 50K evaluations for under $100. Many firms refund the fee with your first payout.
The rules are the product
The account is simulated during evaluation: what you're really buying is a rulebook. The rules that decide whether you keep the account:
- Profit target: the percentage gain required to pass each phase.
- Maximum daily loss: lose more than this in one day (often 4–5%) and the account is closed, even if you recover intraday.
- Maximum drawdown: the total loss limit. Check whether it's static or trailing; see our guide to trailing drawdown.
- Consistency rules: some firms cap how much of your profit can come from a single day, explained in detail here.
- Trade restrictions: news-trading bans, mandatory stop losses, minimum trading days, limits on EAs and copy trading. These vary enormously: Topstep, for example, allows both news trading and copy trading with no restrictions, while many CFD firms prohibit holding through major news events.
Break any hard rule once and the evaluation fee is gone. This is the firm's business model: most revenue comes from failed evaluations, not from the firm's share of trader profits. That's not automatically a scam, but it means the rules are designed to be strict, and reading them matters more than the marketing.
Getting paid
Funded traders request payouts on a schedule: bi-weekly, weekly, or on-demand at some firms. Methods vary by firm: bank transfer, crypto, Wise, and PayPal are common on the CFD side, while futures firms typically pay via ACH, wire, or Wise. Payout speed and reliability are where good and bad firms separate, which is why we track real payout data on every firm profile.
What to check before paying
- Track record: years in operation and review volume. Established firms have survived payout cycles; new firms haven't been tested.
- The full rulebook: drawdown type, consistency rules, and prohibited strategies, before you pay, not after.
- Payout terms: split percentage, frequency, minimums, and any caps.
- Country restrictions: every firm maintains a restricted-country list; confirm yours isn't on it.
- Rule-change history: firms change rules, sometimes retroactively. We log every rule change per firm so you can see how often a firm moves the goalposts.
Compare firms side by side on our prop firm directory; every profile shows verified rules, pricing, and payout data.