# What is a prop firm? > A prop firm (proprietary trading firm) gives traders access to a funded account in exchange for a share of the profit. Retail prop firms charge a fee for an evaluation; pass it and you trade the firm’s account under fixed loss limits, keeping a profit split that is commonly 80% to 90% of what you withdraw. **Source:** https://propfirmpal.com/learn/what-is-a-prop-firm **Generated:** 2026-09-25 **Publisher:** Prop Firm Pal — independent prop firm comparison _Prop Firm Pal earns affiliate commission from some listed firms. This is disclosed on-site and does not affect the computed ranking order._ --- _Updated 2026-09-24._ ## Two kinds of prop firm 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](https://www.federalreserve.gov/supervisionreg/volcker-rule.htm) 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. ## How a prop firm works, step by step 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](https://propfirmpal.com/glossary/challenge-fee). - Pass the [evaluation](https://propfirmpal.com/learn/how-prop-firm-challenges-work): reach a profit target without breaching a [daily loss limit](https://propfirmpal.com/glossary/daily-drawdown) or a [maximum drawdown](https://propfirmpal.com/glossary/maximum-drawdown). Some firms use one phase, some two or three. - Receive a [funded account](https://propfirmpal.com/learn/funded-trading-accounts) with the same or similar loss limits. - Request [payouts](https://propfirmpal.com/learn/how-prop-firm-payouts-work) of your share of the profit, subject to the firm’s minimums, schedule and any consistency rule. - Grow the account through a [scaling plan](https://propfirmpal.com/learn/how-to-scale-a-funded-account), or lose it by breaching a limit and start again. ## Is the money real? 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](https://ftmo.com/en/faq/how-does-an-ftmo-account-work-from-the-technical-side/), 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](https://www.topstep.com/our-program), 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](https://propfirmpal.com/learn/how-do-prop-firms-make-money) for why that matters when you pick one. ## What a prop firm costs Prices vary widely. Across the 23 firms with complete published terms in our [industry report](https://propfirmpal.com/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](https://propfirmpal.com/glossary/activation-fee) when you pass, a [reset fee](https://propfirmpal.com/glossary/reset-fee) to retry, or a [monthly subscription](https://propfirmpal.com/glossary/monthly-subscription) while you are in the evaluation — futures firms especially. Compare the total cost, not the headline price. The [challenges table](https://propfirmpal.com/challenges) lists every evaluation we track with its price and rules. ## The rules that decide most accounts 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](https://propfirmpal.com/glossary/static-drawdown) or [trailing](https://propfirmpal.com/glossary/trailing-drawdown). 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](https://propfirmpal.com/learn/prop-firm-drawdown-types). After those come conduct rules: a [consistency rule](https://propfirmpal.com/glossary/consistency-rule) limiting how much of your profit can come from one day, restrictions on [news trading](https://propfirmpal.com/glossary/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. ## Who a prop firm suits 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](https://propfirmpal.com/calculators/challenge-success) and read [why traders fail prop firm challenges](https://propfirmpal.com/learn/why-traders-fail-prop-firm-challenges). ## Frequently asked questions ### What is a prop firm in trading? A company that lets traders trade an account it provides and pays them a share of the profits. Retail prop firms usually require a paid evaluation first. ### Is a prop trading firm the same as a prop firm? Yes. Both are short for proprietary trading firm. Online, the term almost always means a retail firm that sells evaluations rather than a firm that hires traders to trade its own capital. ### Do prop firms give you real money to trade? Most retail firms fund a simulated account and pay real payouts from their own revenue. Some promote consistent traders to a live account; the firm’s terms say which applies. ### Do you need experience to join a prop firm? Retail prop firms do not check experience; anyone who pays the fee can take the evaluation. Passing it and keeping a funded account requires disciplined risk control, which is where inexperienced traders usually fail. ### Is a prop firm a broker? No. A broker holds your deposit and executes your trades. A retail prop firm charges a fee for an evaluation and pays a profit share; it uses brokers or data providers behind the scenes. ### How many prop firms are there? Prop Firm Pal tracks 633 prop firms, of which 23 had complete published terms in September 2026. Firms open and close often; the firm health tracker follows which are growing or fading. ## Sources - [Federal Reserve — Volcker rule](https://www.federalreserve.gov/supervisionreg/volcker-rule.htm) - [FTMO — how an FTMO Account works technically](https://ftmo.com/en/faq/how-does-an-ftmo-account-work-from-the-technical-side/) - [Topstep — how the funded program works](https://www.topstep.com/our-program) ## Related pages - [How funded trading accounts work](https://propfirmpal.com/learn/funded-trading-accounts) - [How prop firm challenges work](https://propfirmpal.com/learn/how-prop-firm-challenges-work) - [How do prop firms make money?](https://propfirmpal.com/learn/how-do-prop-firms-make-money) - [Are prop firms legit?](https://propfirmpal.com/learn/are-prop-firms-legit) - [Prop firm in the glossary](https://propfirmpal.com/glossary/prop-firm) - [Best prop firms, ranked](https://propfirmpal.com/best-prop-firms) - [How funded trading accounts work](https://propfirmpal.com/learn/funded-trading-accounts) — markdown: https://propfirmpal.com/learn/funded-trading-accounts.md - [How to get a funded trading account](https://propfirmpal.com/learn/how-to-get-a-funded-trading-account) — markdown: https://propfirmpal.com/learn/how-to-get-a-funded-trading-account.md - [How prop firm challenges work](https://propfirmpal.com/learn/how-prop-firm-challenges-work) — markdown: https://propfirmpal.com/learn/how-prop-firm-challenges-work.md - [Instant funding vs evaluation](https://propfirmpal.com/learn/instant-funding-vs-evaluation) — markdown: https://propfirmpal.com/learn/instant-funding-vs-evaluation.md - [Why traders fail prop firm challenges](https://propfirmpal.com/learn/why-traders-fail-prop-firm-challenges) — markdown: https://propfirmpal.com/learn/why-traders-fail-prop-firm-challenges.md - [Prop firm drawdown types explained](https://propfirmpal.com/learn/prop-firm-drawdown-types) — markdown: https://propfirmpal.com/learn/prop-firm-drawdown-types.md - [How to scale a funded account](https://propfirmpal.com/learn/how-to-scale-a-funded-account) — markdown: https://propfirmpal.com/learn/how-to-scale-a-funded-account.md - [Futures vs forex prop firms](https://propfirmpal.com/learn/futures-vs-forex-prop-firms) — markdown: https://propfirmpal.com/learn/futures-vs-forex-prop-firms.md - [How to choose a prop firm](https://propfirmpal.com/learn/how-to-choose-a-prop-firm) — markdown: https://propfirmpal.com/learn/how-to-choose-a-prop-firm.md - [Prop firm vs broker vs hedge fund](https://propfirmpal.com/learn/prop-firm-vs-broker-vs-hedge-fund) — markdown: https://propfirmpal.com/learn/prop-firm-vs-broker-vs-hedge-fund.md - [How do prop firms make money?](https://propfirmpal.com/learn/how-do-prop-firms-make-money) — markdown: https://propfirmpal.com/learn/how-do-prop-firms-make-money.md - [How prop firm payouts work](https://propfirmpal.com/learn/how-prop-firm-payouts-work) — markdown: https://propfirmpal.com/learn/how-prop-firm-payouts-work.md - [Can you make money with a prop firm?](https://propfirmpal.com/learn/can-you-make-money-with-a-prop-firm) — markdown: https://propfirmpal.com/learn/can-you-make-money-with-a-prop-firm.md - [Prop firm taxes](https://propfirmpal.com/learn/prop-firm-taxes) — markdown: https://propfirmpal.com/learn/prop-firm-taxes.md - [Are prop firms legit?](https://propfirmpal.com/learn/are-prop-firms-legit) — markdown: https://propfirmpal.com/learn/are-prop-firms-legit.md - [Are prop firms regulated?](https://propfirmpal.com/learn/are-prop-firms-regulated) — markdown: https://propfirmpal.com/learn/are-prop-firms-regulated.md - [Are prop firms going away?](https://propfirmpal.com/learn/are-prop-firms-going-away) — markdown: https://propfirmpal.com/learn/are-prop-firms-going-away.md