What is a Proprietary Trading Firm?
Understand the prop firm business model, risk and compliance rules, platforms, fees, evaluation flows, payouts and scaling plans.
Business model
Prop firms allocate simulated or internal-risk accounts and monetize via evaluation fees and a share of profits. In return, traders get access to size, structure and withdrawals. The model hinges on strict rule enforcement and consistency requirements.
Typical rulebook
- Daily loss and overall max drawdown (static vs. trailing).
- Profit target and minimum trading days for each phase.
- Execution rules: news windows, copy/hedge limitations, EA policy.
- Payout cycles, methods, and verification requirements.
Platforms & markets
Common platforms include MetaTrader, cTrader, TradingView and NinjaTrader. Markets span forex, indices, commodities, crypto and futures; each has distinct hours, spreads/commissions and volatility patterns.
Payouts & scaling
- Payout frequency (weekly/bi‑weekly/monthly) and minimums.
- Methods: bank transfer, fintech, crypto; processing times.
- Scaling milestones: period-based and performance-based upgrades.
Key considerations
- Clarity and stability of rules; communication of changes.
- Trading conditions: spreads, commissions, slippage.
- Support quality and payout transparency.
Types of prop firms
- Retail evaluation (forex/CFD): fee-based challenges, simulated execution, profit split payouts.
- Futures evaluations: exchange-traded products with trailing/static drawdown specifics.
- Instant funding: higher upfront cost, immediate access, stricter risk and slower scaling.
Risk models explained
Static DD stays fixed from start balance; trailing DD follows equity highs (sometimes includes unrealized PnL). Intraday daily loss resets at session end. Choose a model compatible with your style.
Due diligence checklist
- Read ToS and rulebook; check change logs and news policies.
- Verify payout methods and typical processing time.
- Assess costs beyond the fee: spreads/commissions/data/platform.
- Scan community feedback for specific operational issues.
FAQ
Do prop firms use real or simulated accounts?
Retail evaluation firms often use simulated risk with real-like execution; payouts come from the business model, not client funds.
Can rules change?
Yes. Prefer firms with transparent change logs and advance communication.
What matters most for traders?
Rule clarity, trading conditions, payout reliability, and support quality.