[Basics] [Basics] What is a prop firm? How it works and the reality

A prop firm (proprietary trading firm) makes traders pass an evaluation (challenge); those who pass trade a company account and share the profits.

Structure

1. Pay a challenge fee (tens to hundreds of dollars depending on account size)
2. Hit a profit target without breaking the loss limits
3. Pass and you get a funded account and a share of profits (usually 80–90%)
4. Break the rules on the funded account and it's closed

Rules you must know

• Daily loss limit: lose more than X% (usually 3–5%) in a day and you're out. Firms differ on whether it's based on the day's starting balance or equity
• Max loss limit: lose more than X% (usually 6–10%) of the starting balance and you're out. Some trail the high-water mark
• Prohibited: many ban trading right around news, certain EAs or copy trading, hedging across accounts, etc.
• Consistency rules: some require that no single day exceeds a set share of total profit

The reality

• Most challenges are not passed. Challenge fees are a big part of prop firm revenue
• Even funded accounts are often simulated, not real market accounts — your profit is a reward the firm pays
• After the 2024 MetaQuotes restrictions, some prop firms changed platforms or shut down. Always check payout history and years in business
• There are CFD props (MT5 etc.) and futures props (CME futures), with fairly different rules

Strategy tips are in the How-to post "Passing a prop firm challenge with numbers." See real stories under the [Prop firm] tag in Reviews.