What is a prop firm?

Updated 24 September 2026 by the Prop Firm Pal editorial team.

The term covers two different businesses. A traditional proprietary trading firm trades its own capital through its own brokerage accounts and hires traders to do it, the way a bank’s trading desk once did. In the US the Volcker rule generally prohibits banks from proprietary trading, so firms of this kind are independent trading companies.

A retail prop firm — what almost everyone searching the term means — sells access instead. You pay a fee, prove you can follow a set of risk rules, and the firm pays you a share of the profit you make on an account it provides. You never deposit trading capital and you are not an employee: firms treat funded traders as independent contractors.

The path is broadly the same at every retail firm, though the numbers differ.

• Choose an account size, typically $5,000 to $200,000 of notional capital, and pay the evaluation fee.
• Pass the evaluation: reach a profit target without breaching a daily loss limit or a maximum drawdown. Some firms use one phase, some two or three.
• Receive a funded account with the same or similar loss limits.
• Request payouts of your share of the profit, subject to the firm’s minimums, schedule and any consistency rule.
• Grow the account through a scaling plan, or lose it by breaching a limit and start again.

Usually not at first, and firms say so in their own terms. FTMO states that its funded traders receive a demo account with fictitious capital, priced from real market quotes, and that it decides separately whether to copy trades onto its own real account. Topstep describes its Trading Combine and Express Funded Account as simulated, with a Live Funded Account on real markets for traders it calls up.

The payouts are real money. The firm pays them from its revenue, which at a retail firm comes largely from evaluation fees — see how prop firms make money for why that matters when you pick one.

Prices vary widely. Across the 23 firms with complete published terms in our industry report (September 2026), the cheapest evaluation to a $100,000 account has a median price of $419, ranging from $149 to $1,105. The median phase-one profit target is 5%, the median daily loss limit 3% and the median maximum drawdown 5%.

Many firms also charge an activation fee when you pass, a reset fee to retry, or a monthly subscription while you are in the evaluation — futures firms especially. Compare the total cost, not the headline price. The challenges table lists every evaluation we track with its price and rules.

A prop firm’s rules exist to cap what it can lose on a trader. The ones that end most accounts are the loss limits: a daily limit, and a maximum drawdown that is either static or trailing. A trailing limit follows your highest balance, so profit you give back counts against you — the single most misunderstood rule in the category, explained in prop firm drawdown types.

After those come conduct rules: a consistency rule limiting how much of your profit can come from one day, restrictions on news trading, holding over the weekend, copy trading and expert advisors. They differ firm to firm, which is why the same strategy can pass at one firm and fail at another.

A prop firm suits a trader who already has a tested strategy with controlled losses and lacks the capital to trade it at size. Your maximum loss is the fee, not an account balance, and a funded account lets a small edge produce a meaningful payout.

It suits a beginner less well. The evaluation is a test of risk control under tight limits, and a trader still learning tends to buy repeated attempts. Before paying, run your numbers through the challenge pass rate calculator and read why traders fail prop firm challenges.

Federal Reserve — Volcker rule

FTMO — how an FTMO Account works technically

Topstep — how the funded program works