Prop Firm (Proprietary Trading Firm)
Evaluation & FundingA company that provides traders with capital to trade financial markets in exchange for a share of profits. Modern retail prop firms charge an evaluation fee and fund traders who demonstrate consistent profitability.
The term "prop firm" historically referred to firms like Jane Street or Citadel that hired traders as employees. The modern retail prop firm model is fundamentally different -- traders are independent contractors who pay an evaluation fee for the chance to trade firm capital remotely.
Retail prop firms emerged around 2015 with FTMO being one of the earliest. The model exploded in popularity from 2020 onward, with dozens of firms now competing for traders. Key differentiators between firms include drawdown type (static vs trailing), evaluation structure (1-step vs 2-step), profit split percentages, and which markets/platforms are supported.
The industry remains largely unregulated. Traders should research firm reputation, payout history, and rule transparency before paying evaluation fees. Established firms like FTMO, TopStep, and Apex have years of payout track records.
A trader pays $149 to Apex for a $100K futures evaluation. After meeting the $6,000 profit target over 7+ trading days without breaching the $3,000 trailing drawdown, they receive a funded account. Their first $25,000 in profits is kept at 100%, then 90% thereafter. The $149 fee is their only financial risk.
Prop Firm (Proprietary Trading Firm) directly affects whether you pass or fail a prop firm evaluation. Unlike trading your own account where you can recover from mistakes over time, prop firm rules create hard boundaries -- violate them once and you lose your challenge fee and have to start over. Evaluation rules determine the path from paying a challenge fee to receiving funded capital. Getting this wrong means wasted money and time. Many traders cycle through multiple evaluation attempts because they misunderstand these mechanics.
Practical example across firms: FTMO and TopStep handle this differently. FTMO is a 2-step firm with static drawdown and a 5% daily loss limit, starting from €155. TopStep is a 1-step firm with trailing drawdown and a 2% daily loss limit, starting from $49. These structural differences mean your approach to prop firm (proprietary trading firm) must adapt to whichever firm you choose.
Common mistake: Many traders rush through evaluations trying to hit the profit target as fast as possible. This leads to overleveraging and blowing accounts. The firms with no time limit (most of them) give you the freedom to be patient. Use it. A slow, consistent pass rate beats a fast blowup every time.
Evaluation Phase
A simulated trading period where aspiring funded traders must demonstrate profitability and risk management within defined rules. Passing the evaluation earns access to a funded account.
Funded Account
A trading account provided by a prop firm after passing the evaluation, where the firm supplies the capital and the trader keeps a percentage of profits. The trader does not risk their own money beyond the challenge fee.
Challenge Fee
The upfront cost paid to a prop firm to attempt an evaluation. This fee grants access to the simulated trading environment and is typically refunded after the trader passes and receives their first funded payout.
Payout Split
The percentage of trading profits that a funded trader keeps versus what the prop firm retains. Typical splits range from 50% to 100%, with most firms starting at 80% and offering increases for consistent performance.