Getting started
What is a prop firm? How funded trading actually works
8 min readUpdated 2026-07-01
A proprietary trading firm — a prop firm — gives traders access to a trading account they did not fund themselves, in exchange for a share of the profits. The modern retail version sells an evaluation: you pay a fee, prove you can hit a profit target without breaking risk rules, and then trade a larger account for a cut of the upside.
Key takeaways
- ·You pay an evaluation fee, not a deposit — the fee is not refundable unless the firm advertises a refund on first payout.
- ·Most retail funded accounts are simulated; your orders mirror to the firm's own book or are hedged externally.
- ·The firm's core revenue is evaluation fees, so payout history is the only meaningful proof of solvency.
- ·Profit split is the headline number, but drawdown type decides whether you ever reach a payout.
The evaluation model in one paragraph
You buy a challenge account with a fixed starting balance — typically 25k to 200k. To pass, you hit a profit target (usually 6-10%) while staying inside a maximum loss limit and a daily loss limit. Pass and you get a funded account with the same balance and the same risk rules, minus the profit target. From then on you withdraw a share of net profits, commonly 80-90%.
One-step, two-step and instant funding
- Two-step: cheaper per dollar of allocation, softer targets, slower to funded. The FTMO-style default.
- One-step: single phase, higher fee or tighter rules, faster route to a live payout cycle.
- Instant funding: no evaluation at all, but lower initial split, tighter drawdown and often a minimum trading-days rule before withdrawal.
Where the money actually comes from
The overwhelming majority of retail prop firm revenue is evaluation and reset fees. A minority of firms route consistently profitable traders to a live book. This matters for one reason: if a firm's fee income collapses or is spent, payouts stop. That is exactly what happened to several 2021-2023 firms that disappeared with unpaid withdrawals.
It is why we score firms on evidenced payouts rather than advertised profit splits, and why we run a public payout-complaint register.
Who prop trading suits
- Traders with a tested, rule-based strategy who lack capital — the intended use case.
- Intraday futures traders, where evaluation fees are lowest and payout cycles are weekly.
- Not suited to swing traders on firms with weekend-holding bans, or anyone still discovering a strategy — the fee cycle will outrun the learning curve.
FAQ
- Is prop firm trading real money?
- The payouts are real; the account is usually simulated. Firms either hedge selected traders' flow in the live market or take the other side internally. From the trader's perspective the practical question is whether withdrawals clear on schedule.
- How much can you make with a prop firm?
- Realistically, a funded 50k account traded at a 1-2% monthly return with a 90% split pays $450-$900 a month. Scaling plans, not single accounts, are what make prop trading meaningful income.
- Do you have to pay back losses?
- No. Your downside is the evaluation fee. If you breach the maximum loss the account is closed, not invoiced.