What Is a Prop Firm?

Prop Trading Firms and Funded Trader Programs Overview

Although it may be difficult to become a professional trader, it will be worthwhile. Many proprietary trading companies offer beginner traders endless opportunities, and with the competition increasing every week, quite a few now offer free training.

With the increasing popularity of using the term "prop firm," you might have found yourself on this page looking for an answer to what is a prop firm. This article will explain what a prop firm is, different ways to get funded with a prop firm, and much more.

What is a proprietary trading firm?

Many people are familiar with the term prop firm but might need to learn its true nature. Prop firms offer prop traders the opportunity to trade with them. The company offers traders capital they can use for trading stocks, Forex, Crypto, commodities, futures, and more. You have complete control over what trades you make as a trader. 

If you are already familiar with what prop firms do, we have put together a list of the best firms to start with for prop trading in futures and forex for you to check out.

How do Prop Firms work?

Prop firms usually have evaluation stages during which traders have to prove to the trading firms that they have the right skill set, knowledge, and experience to trade with the firm's funds. More often than not, a prop firm will start a trader with a simulator evaluation stage. This way, the firm protects itself from any losses in case they have some inexperienced traders that quickly blow their accounts away. At the same time, the prop firm will still collect the fees from these traders.

Other proprietary trading companies can also hire prop traders to trade on their behalf. To get to this type of arrangement, the trader will have to prove the requirements mentioned above and interview with the prop firm's team members to get the position. If hired, the trader will be provided with a certain amount depending on their skill level. Depending on the agreement, the company will take a certain amount the trader earns.

The terms of the agreement between the company and traders can vary from one company to another. However, it is becoming increasingly popular among prop firms to allow their funded traders to keep 100% of a certain amount of profit that the trader makes in the beginning. We have noticed that amount is around $10K on average.



The split after traders gets funded is usually 80/20. This means traders get to keep 80% of their profits, and the prop firm takes 20% of them.

How do Prop Traders Make Money with Proprietary Trading Companies?

Prop firms, as mentioned before, provide capital to traders. However, traders must put in the work to make sure they make enough profit.

Many prop trading companies provide traders with enough resources to increase their profits.

Sadly, prop firms tend to make the most money from inexperienced traders that have to reset their accounts. Resetting happens after the trader falls out of the prop firm's limits. This could be exceeding the daily loss limit, exceeding the overall loss limit, not hitting profit targets during the time allowed, or even having a trading style that the prop firm is not a fan of.

The Reputation of Prop Firms

During the times of the internet, traders have all of the tools necessary to conduct in-depth research on prop trading companies. At OnlinePropTrading.com, we save traders time by reviewing prop trading companies ourselves. We start by gathering the data on prop firms from third-party review platforms and social media chatter to going as far as trying the products ourselves to confirm the reputation of these firms.

A trader must look at the reputation of their company. This is because a company's reputation will determine how it performs financially.

Reputable prop firms are more likely to pay high wages and then increase these wages over time. 

Firms Participation Fees

What is the cost of joining a prop trading firm? This is the most frequently asked question by new prop traders. Prop trading firms charge an average monthly subscription fee that can start as low as $50 and get into thousands of dollars per month.

What you will pay will depend on what type of account you are going after, how much you are trying to get in funding, how aggressive the plan is, if you have any funded trader promo codes that you have found, etc.

What are the risks associated with a proprietorial firm?

The prop company's capital funds funded traders of proprietary firms. However, it is your responsibility to make a profit. Therefore, trading as a novice prop trader can be risky, depending on your type of trading.

Before trying to become a funded trader, you should already have a solid base of knowledge, experience, and skills developed. You should have already executed profitable trades in demo accounts and familiarized yourself with software for trading, chart patterns, indicators, and different strategies. Traders that pay money to prop firms but lack the abovementioned things set themselves up for failure. It is common knowledge that over 70% of trades fail, so you must do the work and develop your skills before throwing your money at a prop firm.

Market risks are one of the biggest risks traders have. Market risks can cause you to lose all your money if you don't keep up with the market. Sudden moves in the market can make you blow your evaluation account in minutes and sometimes seconds. Over-leveraging without fully understanding what leverage means can quickly set you up for a margin call.

Other risks include slippage, inflation, opportunity, concentration, and inflation. As you see, getting funded with a prop firm is not a cakewalk, and quite a few things could go wrong. However, the risk of losing your money can be decreased with knowledge and experience.

How do I become a Prop Trader?

Becoming a funded trader with a prop firm takes work. However, it can be extremely rewarding. Before jumping in head first, you will need to learn how to trade, create a trading strategy, and develop risk management skills and practice before joining a prop trading company to get funded.

Below we have highlighted the steps you will need to take to become a funded trader with a prop firm.

1. Learn how to trade and have strategies you have tested with paper trading. You must have a very good understanding of how different markets move and what drives them, and you can quickly conclude from seeing patterns. In addition, you should have developed a skill to use charting indicators to help you analyze what's happening in the market and have successfully executed demo trades to the point where your demo account is profitable. A lot goes into this step, but we will skip over it since it will be in our other articles down the road. Finally, you should study risk management and day trader psychology to increase your chances of success.
2. Buy a prop trading firm evaluation stage subscription and start implementing your working strategies. This is where you will get to show off your knowledge and skills to become a funded trader.
3. Follow the rules and make profitable trades. Only some trades will be profitable. However, with proper risk management and good strategy, you will be able to stay within the limits of the program that you have signed up for. 
4. Once you pass the evaluation stage or stages, you will be granted a real funded trader account with the prop firm. You will then be able to trade with real capital and start earning real money.

Is it worth joining a private firm?

Although it is easy to mistake trading platforms for prop firms, proprietary trading companies offer many benefits that trading sites do not. It increases your financial potential, provides the funds you need for your trading account, and offers great returns.

Getting funded with a prop firm allows you to make trades with money that is not yours. However, you are paying a monthly fee to offload the risk of losing your money when trading. If you have blown your prop trading account, you must pay a reset fee and continue your trading journey.

At OPT, we are all about finding great prop firms that help traders succeed in the world of trading. If you read our guides, you will get a good feel for what programs are good and which ones you should avoid.