What is Proprietary (Prop) Trading?
A concise, practical explanation of how prop firms work, how traders access company capital, the rules you must follow, and what matters for sustainable results.
Definition
In prop trading you trade on a company-provided account while following the firm’s risk framework. The firm keeps a small share of profits for capital and infrastructure; the majority (often 80–90%) goes to you. Access typically requires passing an evaluation challenge under strict risk limits.
How it works
- Choose account size and evaluation type (1–2 phases, or instant funding).
- Reach the profit target without violating daily/max loss or other rules.
- Receive a funded account; request payouts after minimum trading days.
- Scale notional size and profit split as consistency improves.
Pros & cons
Pros
- Access to larger notional size.
- No personal risk beyond the fee.
- Payouts with high split (80–90%).
- Structured discipline via rulebook.
Cons
- Strict rules (daily loss, max DD).
- Evaluation fees and pressure.
- Potential rule changes by firms.
- Execution differences (spreads, slippage).
Typical rules
- Daily loss limit (e.g., 4–5%) and total max drawdown.
- Profit target to pass a phase (e.g., 5–10%).
- Minimum trading days for challenge and payouts.
- Restrictions: news windows, copy/hedge limits, EAs policy.
Key takeaways
- Risk management outweighs any single setup.
- Consistency and journaling are non-negotiable.
- Choose firms whose rules fit your strategy and schedule.
- Start small, then scale after clean payout cycles.
Regulatory context & ethics
Prop trading operates under the firm’s internal risk framework, separate from client brokerage. Read each firm’s Terms and Conditions, privacy policy, data handling, and rule change policy. Ethical trading excludes latency arbitrage, copy abuse, and other restricted behaviors that may lead to disqualification.
Beginner roadmap (90 days)
- Days 1–30: Learn basics, demo trade, journal, measure win rate and R:R.
- Days 31–60: Small live or strict demo with risk cap (0.25–0.5%/trade).
- Days 61–90: Choose a firm and evaluation; execute with consistency rules.
FAQ
Is prop trading legit?
Yes, but firms vary. Prefer transparent rulebooks, stable policies, clear payout data and responsive support.
How much capital do I need?
Fees depend on account size/type. Start small; the goal is consistency, not maximum nominal size on day one.
Can I automate strategies?
Check EA policies. Some firms allow EAs under specific conditions; others prohibit certain automation patterns.
Next steps
When you understand the basics, move on to challenge execution and firm selection.