Proprietary trading, often called prop trading, is where you trade financial markets using a firm’s capital instead of your own, in exchange for a share of the profits, as long as you operate within strict risk limits and trading rules.
This page aims to explain what proprietary or ‘prop trading’ is, the advantages and risks of prop trading, and how to get started as a prop trader with a funded account. We also listed the best proprietary trading firms in 2026 if you’re looking to get started.
Prop trading works by letting you access firm capital after you prove you can trade profitably within strict risk limits.
In practice, this usually starts with an evaluation account. You’re given virtual funds, real market prices, and a set of rules that decide whether you qualify. Typical targets sit around 8–10%, while maximum drawdown might be 5–10%.
One of the first lessons you learn is that prop drawdown isn’t the same as being “down on the week.” I’ve seen accounts fail while still net profitable because one session exceeded the daily loss limit. Two normal-sized losing trades on a slow day can be enough if you’re not tracking intraday risk properly.
Once you pass, the funded account looks similar, but the pressure changes. Now the goal isn’t passing. It’s staying funded long enough to get consistent payouts.
Prop trading generally falls into two models, you have traditional in-house desks and online prop firms. Both use firm capital, but how you’re assessed and managed is very different.
Traditional prop desks involve working directly for a firm, usually in an office trading environment.
Risk is often managed internally, and capital is scaled slowly. You’re monitored over time, not over a single evaluation window. Mistakes are corrected through feedback, not instant account closure.
For most retail traders, this model isn’t accessible. It requires location, interviews, and often a finance background.
Online prop trading firms replace interviews and mentorship with rules and automation.
This is where most proprietary traders enter the space today. You trade remotely, pass an evaluation, and manage your account independently. You get access to a range of financial instruments (which is obviously firm dependent), but hat freedom comes with trade-offs.
One mistake I made early on was moving straight from my first passed challenge into an instant funding account without adjusting my risk. The rules were tighter, the drawdown was trailing, and I hadn’t changed how I sized trades. A small pullback wiped out weeks of progress.
Another thing you only learn by experience is how rules are enforced. Some limits are automatic while others are manual. I’ve had trades that looked fine on the chart, only to be flagged days later because they breached a news rule that wasn’t clearly surfaced on the platform.
That’s why reading the rules once isn’t enough, you really need to understand how they’re applied, not just how they’re written. Online prop trading rewards traders who adapt their execution to the rule set. It punishes traders who assume profitability alone is enough.
Proprietary trading originally developed inside large financial institutions, where investment banks and commercial banks used their own capital to trade financial markets for profit rather than executing trades for clients. These firms ran dedicated proprietary trading desks, staffed by professional traders taking positions across equities, bonds, currencies, commodities, and derivatives.
In this model, traders were employees trading the firm’s own funds, not client funds. Unlike brokerage firms that process trades for customers, proprietary trading desks existed purely to generate profits for the institution, with risk management, position sizing, and losses handled internally.
While some institutional prop trading still exists today, most retail traders now encounter proprietary trading through independent prop trading firms rather than bank-run trading desks.
What’s the Difference Between Prop Trading and Hedge Funds?
Prop trading and hedge funds are often confused, but the core difference is whose money is being traded. Proprietary trading firms use their own capital, while hedge funds invest client funds raised from outside investors.
In prop trading, the firm takes the financial risk and shares profits with traders through a split. In hedge funds, profits and losses directly affect investors, with managers paid via management and performance fees. As a result, prop trading focuses more on execution and risk control, while hedge funds operate under investor mandates and longer-term portfolio strategies.
Prop trading is best suited to traders who already have a repeatable strategy and can follow risk rules even when emotions kick in.
If you’re still changing systems every few weeks or relying on instinct more than rules, prop trading will feel frustrating fast. When I first moved into prop trading, my strategy was profitable, but my execution wasn’t built for fixed drawdown limits. A setup that worked fine on my own account suddenly became a problem when a small losing streak counted against a daily loss cap.
You tend to do better in prop trading if you already know your numbers. That means knowing how much you risk per trade, how many losses in a row your strategy can handle, and when it makes sense to stop trading for the day.
Most retail traders enter prop trading through online prop firms rather than traditional desks. That accessibility is a big reason prop trading has grown so quickly, but it also means you’re managing everything yourself. There’s no risk manager stepping in before you breach a rule. Once you cross the line, the account is usually gone.
Before looking at the upsides, it helps to understand the type of trader prop firms are built for. From experience, the following traits matter more than raw win rate.
This is why many profitable retail traders still struggle with prop accounts at first. The environment rewards consistency more than aggression.
Online prop trading is often a better fit if you’re under-capitalised but already disciplined.
When I passed my first evaluation, the temptation was to immediately scale up to a larger or instant funding account. That’s where I ran into trouble. The rules were tighter, the drawdown was trailing, and I hadn’t adjusted my position sizing. The strategy didn’t fail, but the risk model did.
Online prop trading works best when you treat it like a risk framework first and a profit opportunity second.
Online prop trading comes with clear trade-offs, and it’s worth understanding how they show up in real trading before committing.
Before I explain each point down in detail, it’s worth understanding that these pros and cons don’t exist in isolation. Most traders experience several of them at the same time, often within their first few challenges. How these factors play out depends less on the firm’s marketing and more on how you trade, manage risk, and adapt to structure.
Access to larger capital is the obvious attraction, but it changes how you trade more than most people expect.
When you first move from a small personal account to a prop account, the temptation is to trade bigger because the balance looks bigger. What actually worked better was doing the opposite. I ended up risking less per trade than I ever had before, sometimes 0.25% or less. The edge wasn’t size, it was being able to trade clean setups without feeling rushed to make money quickly. The capital gives you room to breathe, but only if you respect it.
The challenge fee feels small compared to the account size you’re trading, and although this is a major perk, it can create bad habits early.
When I first started, I treated challenge fees like disposable attempts. If a day went badly, I’d push harder instead of stepping away because “it’s only the fee.” That mindset led to more failed challenges than bad trading ever did. Once you treat the evaluation like a real account, your decision making changes. The fee stops feeling cheap once you’ve paid it a few times.
Scaling is one of the most underrated benefits of prop trading when it works well.
Once you’ve proven consistency, scaling lets you increase account size without starting from scratch. When this clicked for me, the biggest advantage wasn’t earning more per trade, it was being able to keep the same risk model while letting the account do more of the work. The strategy didn’t change. The execution didn’t change. The capital did.
If your entries are clean and your risk is already controlled, scaling feels natural. You’re not forced to trade more often or take lower-quality setups. You’re simply applying the same process to a larger base, which is exactly what most traders are trying to do long term.
High profit splits are one of the clearest advantages of trading with a prop firm.
Once you’re funded and taking regular payouts, the split becomes very real very quickly. When I started receiving consistent payouts, the difference between an 80% and 90% split wasn’t theoretical anymore. Over a few months, it materially changed what I took home, even though the trading stayed the same.
What makes this powerful is that you’re earning that percentage on capital you didn’t have to build yourself. When things are running smoothly, it lets you think in terms of monthly performance and withdrawals rather than individual wins and losses, which is where prop trading starts to feel like a proper trading framework rather than a challenge grind.
Most traders underestimate how demanding prop challenges actually are. I did when I started. My early failures weren’t about bad strategies, instead they came from the structure of the challenge itself. You’re usually trying to make 8 – 10% while working inside a relatively tight drawdown, and that imbalance changes how every trade feels. A couple of normal losses or too wider stop can suddenly put you on the back foot, even if your edge is sound.
What makes this harder is the time pressure. You’re trading knowing there’s a target to hit, which pushes many traders to overtrade, size up, or take setups they’d normally skip. Passing challenges ended up being less about finding great trades and more about managing yourself when nothing clean was setting up. That’s where most accounts are lost.
Prop firm rules often seem clear and easy to understand, until you trade under them. Some firms enforce almost everything automatically, so you’ll see violations instantly. Others use a mix of automatic and manual checks, and a few rely heavily on post-trade reviews. I’ve traded with firms where nothing flagged in real time, only to be notified days later that a rule had been breached. By then, the trade was long closed and the damage was already done.
Another thing that catches people up is that rules often change between the challenge and the funded account. A strategy that’s allowed during evaluation may have tighter limits once you’re funded, especially around news trading, automation, or holding positions. Some firms also charge add-on fees for things like trading during news or using automated strategies, which isn’t always obvious upfront.
If you don’t understand how rules are enforced, whether they’re automatic or manual, and whether they differ between challenge and funded accounts, you’re trading with gaps in your information. That’s usually where unexpected violations come from, not bad trades.
Prop trading punishes emotional trading far more than retail trading. Any habit you already have gets magnified. Overtrading after a win, revenge trading after a loss, or forcing trades on slow days all lead to the same outcome. I passed more challenges by trading less, not more. Flat days became acceptable. Missing trades became normal. Discipline wasn’t about being perfect, it was about not doing damage.
Prop firms aren’t regulated in the same way as brokers, and that matters. You’re trading in a simulated environment, and the protections you’re used to with brokers don’t always apply. Two firms can advertise similar rules but handle disputes, payouts, and violations very differently. I learned quickly that reputation and transparency matter more than headline offers. This isn’t something to gloss over, especially once real payouts are involved.
Prop trading still carries real risk, even though you’re not trading your own capital.
Most evaluations require you to make around 8–10% while staying within a 5% or similar drawdown. That imbalance means risk management has to be tighter than most retail traders are used to. One poorly managed session can undo weeks of steady gains.
Digital prop firms also vary widely in how they operate. Two firms can advertise almost identical rules and produce very different outcomes once you’re trading. That’s why research matters, especially around enforcement, payouts, and account management.
If you go into prop trading expecting flexibility, you’ll struggle. If you go in expecting structure, constraints, and repetition, you’re approaching it with the right mindset.
In prop trading, your strategy is whatever survives the firm’s rules. When I first moved into funded accounts, I didn’t change my edge, but I had acknowledging that daily loss limits, trailing drawdown, and holding rules decide what’s actually tradable.
Most of what works is execution-based. I ended up leaning on short-term price action, tight intraday momentum, and simple swing setups around clear levels because I could control risk precisely. Anything that needed wide stops or patience over multiple days kept running into drawdown limits.
The biggest adjustment was realising strategies aren’t universal. A setup that worked fine at one prop firm failed at another because the drawdown model was different. That’s when it clicked that prop trading isn’t about finding the best strategy. It’s about adapting a simple one to the specific rules of the firm you’re trading with and executing it the same way every day.
No, prop firms aren’t regulated like forex and CFD brokers, but recently the industry has faced more scrutiny, but because most prop traders operate in a simulated trading environment, its a grey area for financial regulators.
There’s some regions trying to manage things, with countries like Australia setting limitations on funded trader programs and introduced augmented reporting obligations for forex brokers pivoting into the prop trading space.
Regardless of these constraints, there’s only so much financial authorities like ASIC in Australia or the FCA in the UK can enforce, as unlike brokerage operations, prop firms aren’t deposit taking companies, and evaluations operate in a simulated environment that mirrors real market conditions.
Prop trading is not illegal, but it operates differently from traditional regulated trading and forex brokers. When you trade with a prop firm, you’re trading the firm’s capital, usually in a simulated environment, rather than trading client funds like a broker does. That’s why prop firms aren’t regulated in the same way as CFD or forex brokers, because they aren’t deposit taking entities and you aren’t trading in live markets. Legality can also depend on your country and how the firm structures its challenges, so it’s important to understand the rules and requirements before signing up.
Prop traders get paid through profit splits on funded accounts after meeting the firm’s payout conditions. Once you’re funded, profits are split between you and the firm, usually on a weekly or monthly schedule depending on the provider. Typical splits range from 70% to 90%, with some firms offering higher under specific conditions. These payouts are one of the ways how prop firms make money, which is why minimum profit thresholds and strict rule compliance are part of the process. Staying funded is just as important as being profitable.
Some prop traders make good money, but income varies widely and depends on consistency, not just strategy. Earnings depend on how long you keep your funded account, the size of your account and whether scaling plans are available, the profit split, and how often you withdraw funds. Many traders fail before reaching regular profit payouts, while others build steady monthly income over time. Prop trading rewards disciplined traders who manage risk well, rather than those chasing big wins or fast results.
You become a prop trader by passing a firm’s evaluation and qualifying for a funded account. You start by choosing an online prop firm, paying a challenge fee, and trading a simulated account under set rules. If you hit the profit target without breaching drawdown or risk limits, you’re offered a funded account. From there, the focus shifts from passing challenges to staying funded and managing payouts consistently.
