Prop Firm: What is it and how does it work?

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What is a prop firm?

A prop firm (short for proprietary trading firm) is a company that finances traders so that they can trade on the financial markets using the firm’s capital rather than their own money.

Here are the key points:

Benefits for the trader:
This allows a skilled trader without large capital to trade with large amounts and earn a share of the profits so that he can make a living from trading without risking his own savings.

Basic principle :
The prop firm provides a funded trading account. The trader takes positions on the markets (forex, indices, crypto, equities, etc.) according to the rules set by the firm.

Evaluation phase :
Before obtaining a funded account, the trader often has to pass one or more evaluation stages (called “challenges” or “qualification phases”). They must achieve a certain profit without exceeding a maximum loss.

Profit sharing:
If the trader is successful and obtains a funded account, he can keep a percentage of the profits made (often between 70% and 90%), with the remainder going to the prop firm.

Risk :
Traders do not risk their own capital (apart from any valuation fees), but they must abide by strict rules. If these rules are broken (e.g. maximum drawdown exceeded), the account is closed.

The objective? To identify talented traders capable of generating regular profits on the financial markets (forex, indices, equities, cryptocurrencies). In exchange, you share your profits according to a pre-defined percentage, generally between 70/30 and 90/10 in your favour.

The business model of a prop trading company

The business model is based on two pillars. Firstly, registration fees for evaluation challenges: these paid tests (often between €100 and €500) enable the prop firm to select its traders. Secondly, commission on profits: once you are funded, the company takes its share (10 to 30%) of your earnings. This model enables prop firms to limit their risk while offering an opportunity to those who do not have the means to start trading on a small budget.

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How does a prop firm work in practice?

Step 1: Registering and choosing a trading account

Challenge fee
For a €10,000 virtual account, the cost is often around €80-100. For larger accounts (€25,000, €50,000, €100,000), the fees climb: €140-160 for €25,000, €200-300+ for €50,000 and over.

Capital available
Many prop firms offer challenge accounts ranging from $5,000/€ up to $400,000/€, sometimes more. The size of the account influences the fees, the risk allowed, etc.

Conditions to be read carefully
There are a number of standard rules to check before signing up:

Each prop firm has its own specific conditions: profitability target, drawdown limit, minimum number of trading days, etc. It is crucial to read these criteria carefully before committing yourself.

Criteria	Typical values 2025
Profit target	~ 5-10% of capital in the challenge phase. For example, 8% phase 1, then 5% phase 2.
Maximum loss limit / total drawdown	~ 8-12% depending on the company.
Daily drawdown (daily loss limit)	~ 3-6% depending on the type of account and the company.
Minimum number of trading days (min trading days)	Typically 5-10 days in many challenges.

It is possible to reduce the registration fee with a prop firm promo code to lighten this initial investment.

Stage 2: The demo account evaluation challenge

Once you have registered, you will be asked to take part in a trading challenge on a demo account, i.e. in simulation. Your objective? To prove that you are capable of following the rules and generating profits consistently. For example, you may have to achieve 10% gains without exceeding a maximum loss of 10%.

This evaluation phase generally lasts between 30 and 60 days. It allows the company to check your discipline, risk management and trading strategy. To maximise your chances, it is essential to understand the rules and strategies of prop firm challenges before you start. Some platforms even offer the opportunity to try out free prop firm challenges to familiarise yourself with the process.

Stage 3: Obtaining the financed account

If you pass the challenge, congratulations! You will receive a funded account, i.e. a trading account funded with real money provided by the prop firm. At this stage, your trades are generating real profits that you can withdraw (payout).

Some prop firms require an additional verification phase to confirm the consistency of your results. But once this stage has been completed, you can start trading with the company’s capital and earn your first income.

Stage 4: Real trading and profit sharing

Now you can trade in real conditions. Each profit generated is shared according to the percentage defined in your contract. The best prop firms offer a scaling system: the better you do, the more your capital increases (sometimes up to several hundred thousand euros).

Withdrawal frequency: often every 7 days, every 14 days or every month, depending on the firm. Some require you to reach a minimum profit or withdrawal threshold.

Scaling: if the trader performs well, the capital can be increased, making it possible to trade with more funds. Some firms offer this option.

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The advantages of trading with a prop firm

Access substantial capital with minimal investment

One of the main advantages of prop firms is that you can access financed trading accounts without tying up tens of thousands of euros. For a few hundred euros, you can trade with €10,000, €100,000 or more. This is an incredible opportunity for traders who have the skills but not the funds, as well as for a new trader.

Trading without risking your own money

With a prop firm, you don’t risk your personal savings on the markets. If you lose, it’s the company’s capital that’s affected, not yours. All you lose is your entry fee for the challenge. This approach allows you to trade more calmly, without the emotional pressure of losing personal money.

Developing your skills in a structured environment

The strict rules of prop firms require you to adopt an iron discipline: rigorous risk management, respect for objectives and consistency in your results. This environment is ideal for making rapid progress and professionalising your approach to trading. You learn to trade like a professional, with constraints that force you to move away from impulsive behaviour.

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What to look out for when choosing a prop firm

Trading rules and constraints

Prop firms impose strict rules that are not suitable for everyone. Forbidden to trade certain sessions, limits on open positions, very tight maximum drawdown, etc. These constraints can restrict your trading style. If you use a trading robot (EA), be careful: some platforms prohibit this practice. Make sure youavoid mistakes with trading robots by checking the terms and conditions.

Type of rule	Typical detail (2025)	Impact for traders
Daily drawdown	3 to 5% maximum loss per day	A single bad trade can invalidate the challenge.
Total drawdown	8 to 12% of total capital	You cannot exceed this threshold for the entire account.
Profit target	8 to 10% to validate the first phase	Requires rigorous risk management.
Challenge duration	Depending on the prop firm, can be unlimited or from 30 to 60 days.	If there is a challenge period, you must achieve the objective within this timeframe.
Minimum trading days	5 to 10 active days	Avoid overly risky one-shot trades.
Authorised/prohibited trading	Some prohibit trading during high-impact news events or at night	Can limit scalpers and automatic robots.
Robots / EA	Accepted or prohibited depending on the company (often monitored)	Always check the policy before using an EA.

Tuition fees and actual success rate

Let’s be honest: the majority of traders fail the challenge. The average success rate is around 10-20%. This means that prop firms make a lot of money on the registration fees, much more than on the commissions of funded traders. Before taking the plunge, ask yourself whether you are really ready and whether your strategy is sound enough.

Virtual account size	Average costs (2025)	Average success rate
10 000 €	80 – 120 €	15 – 20 %
50 000 €	250 – 350 €	10 – 15 %
100 000 €	400 – 600 €	8 – 10 %
200 000 €	800 – 1 000 €+	5 – 8 %

How to identify a reliable prop firm

Not all prop firms are created equal. Some are less than transparent about their terms of payment or put up obstacles to delay withdrawals. To avoid unpleasant surprises, take the time to read reviews of prop firms and check their reputation. Choose companies that are regulated, transparent about their rules and have a proven payment history. You can also find out about the best prop firms via detailed comparisons.

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Where to start with prop firms?

Now that you understand how prop firms work, it’s time to take action. To maximise your chances of success, we recommend that you follow a complete guide to trading with a prop firm, which details the steps involved, the mistakes to avoid and good practice.

If you’re just starting out, opt for a platform that’s suitable for novices, such as SabioTrade, which is ideal for beginners and offers flexible rules and educational support. Before making a financial commitment, consider taking advantage of exclusive promo codes to reduce registration costs and try out several challenges.

Finally, take the time to prepare your strategy. A successful challenge cannot be improvised: discipline, risk management and consistency are the keys. Don’t hesitate to adopt a winning action plan to validate your prop firm challenge, to structure your approach and put all the chances on your side.

The best-known prop firms on the market:

• FTMO: opinion on the best-known prop firm on the market
• WeGetFunded: the best French prop firm?

See also:

• The best free prop firms challenges
• Trading EA and prop firm: mistakes to avoid