Introduction
A proprietary trading firm, or prop firm, enables traders to execute trades in the financial market using the firm’s capital. Rather than risking your own money trading the financial markets, you are using the firm’s capital and splitting profits according to the firm’s terms. This article will explain how the prop firm process works, and what to look for when looking through prop reviews, as well as what role a prop broker and prop firm accounts play.
How a Prop Firm Works
Key steps
- Challenge/Evaluation: Typically, traders go through some sort of evaluation to demonstrate their ability to be profitable, and when taking losses or drawdowns, can follow the risk rules set by the prop firm.
- Funded Account: When a trader meets the requirements or passes the challenge, they then receive a funded account to trade with the prop firm.
- Profit Share: The prop firm would take a split or a percentage of profits generated by the trader. Typical profit splits can be in the range of 70-90% to the trader, and the rest is profit share to the prop firm.
- Risk Rules: The prop firm has rules in place to manage risk and control loss. Typical rules might include drawdown limits, maximum daily loss, maximum position size, and more.
Typical types of prop firm accounts
- Simulated (demo) evaluation accounts — These are used during the challenge process.
- Live funded accounts — Real money is given after passing the evaluation.
- Scaling your accounts – Funding and/or profit share may rise after you show a consistent level of profitability.
Prop Broker vs Prop Firm — What’s the Difference?
What’s the Difference Between Prop Broker and Prop Firm?
- Prop Firm: The company that sponsors the accounts and oversees the rules and profit-sharing.
- Prop Broker: The execution platform or brokerage that the prop firm uses to execute trades. Prop brokers manage market access, execution, and assigned leverage. While some prop firms will work through their current brokerage firm partners, others will have their own broker.
What to Check in Prop Reviews
Look for the following when reading reviews of prop firms:
- Transparency — The fees, risk limits, and profit split are all spelled out.
- Payout reliability — How quickly and consistently the payout process is carried out.
- Platform Quality — Instrument availability, slippage, and execution speed.
- Support and education — Does the prop firm provide onboarding, tools, or mentoring?
- Hidden costs — Monthly fees, data fees, or chargebacks during losing months.
Pros and Cons
Pros
- More capital for trading.
- Less personal capital risk.
- Clear pathway to scaling your trading business.
Cons
- Rigid requirements may stifle your overall strategy development.
- You may have to pay an evaluation fee or a subscription fee regularly.
- Profit sharing can lead to lower take-home profits.
Summary
A prop firm can accelerate your serious trading if you’re willing to give up some of your capital and a significant share of your earnings. Before signing up, it’s important to understand how prop broker relationships can influence a prop firm account structure and how safe your money will be (if you are trading with an evaluation-funded account). This can involve taking the time to seek out prop reviews from real traders, which can help you understand payout, support, and rules. All of these factors, along with how they align with your specific trading philosophy and risk tolerance, should be evaluated.
FAQs
Q: Are prop firm accounts real money?
A: Once you have passed the evaluation, the funded accounts will use the firm’s capital to trade live.
Q: How do prop reviews help?
A: Prop reviews can provide insights into the realities of real trader experiences with a prop firm’s payouts, support, and overall judgment fairly by rules that are outlined and can affect your overall trading.
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