What are Prop Trading Firms and How to Choose the Best One

An Introduction to Proprietary Trading

Proprietary trading firms, also known as prop trading firms, provide traders with access to capital, taking on the risk in exchange for a share of the profits. This type of funding model has seen a huge rise in popularity in recent years, with retail traders attracted by the potential scaling opportunities without risking their own funds.

To briefly explain how prop trading works, we will break it down into simple terms. Most prop firms start by testing traders as part of an evaluation stage, to see how they perform in a risk-free environment. This could involve a single stage process or multiple stages, depending on the company. 

Once a trader passes the test, like meeting a certain profit target, they will be given a funded account. Again, there will be specific requirements that traders must meet in order to keep their account active. Each company has its own set of trading rules, meaning you should choose carefully when selecting a proprietary trading firm.

We have put together this detailed guide to prop trading so you can gain a better understanding about what prop trading is and how it works. Our aim is to provide the information and insight you need to choose the right prop trading firm with confidence.

Overview of how prop trading works

What Is a Proprietary Trading Firm?

There is much more to prop trading firms than simply funding traders with their own capital. The prop funding model is carefully designed to ensure that firms remain sustainable and generate a return on investment. Proprietary trading firms act as capital allocator, implementing multiple risk controls from the very beginning. This means that only the most capable traders reach the fully funded stage.

Most firms set out clear, predefined rules so that they can best protect their capital and ensure profitability. These include drawdown limits, profit targets, daily loss thresholds, and fixed leverage rules. With prop firm profits being directly linked to trader success, continuous evaluation and performance tracking is essential to the company’s daily operation.

An increasing number of companies now provide scaling opportunities, which gives high-performing traders access to increased capital over time. Scaling is normally structured in tiers, with traders required to unlock each level through meeting certain trading requirements. This structure rewards traders who demonstrate successful strategies over a long period of time. It also benefits prop firms, who are able to focus more of their attention and funding on its top performers who bring in the most consistent returns.

Therefore, proprietary trading firms are not only funding providers to traders, they facilitate a trading partnership based on shared success. Traders contribute by bringing skill and discipline, while the firm provides capital, structure and support. Each collaboration between a trader and prop firm is based on mutual trust, risk management, and common trading goals.

How Do Prop Trading Firms Work?

Before you sign up as a prop trader, it is worth taking some time to learn more about how prop trading firms operate. Remember, not all companies offer the same funding models, evaluation rules or profit splits. In order to make a better informed choice, we recommend that you carry out proper research. 

To help you enhance your overall understanding of a typical prop firm structure, we have outlined some of the most common elements found in the majority of prop trading models. Keep reading on to find out more about the main aspects we identified on the websites of all the companies we visited.

Funding & Capital Allocation

One of the most attractive features of a prop firm is access to capital. You will usually begin with a simulated account, where you are expected to meet profit targets and risk rules. After passing the various test stages, you then move on to a funded stage, which is often simulated but with real payouts. Some firms offer direct access to real trading accounts, while capital allocations range from $10,000 to over $400,000, depending on trader performance and the scaling plan offered.

Profit Split & Fees

At the funded account stage, you are able to earn a percentage of the profits you generate. Across the industry, profit splits range from around 70/30 to as high as 90/10 in your favour. Many prop firms charge a one-time fee to join the evaluation phase in order to cover costs. A number of companies may also apply additional maintenance fees, so it is crucial that you review the associated charges involved and not only the potential profit share.

Trading Platforms & Tools

Prop firms provide access to industry-leading, reputable trading platforms like MetaTrader 4 (MT4), MetaTrader 5 (MT5), cTrader and others. Within these terminals, traders can utilise a range of useful features, including risk management dashboards, tracking tools, and daily performance metrics. Look out for prop firms that offer educational resources or coaching to support your own development. The range of tools and support can vary between providers, so check exactly what’s included before proceeding.

Evaluation Process & Rules

You will be expected to complete at least one demo challenge before being given access to funded capital. These challenges include a set of predefined rules like maximum drawdowns, daily loss limits, profit targets, and minimum trading days. The evaluation stage is designed to test your ability to manage risk and follow company guidelines. Usually, there is a maximum of up to two challenge or evaluation phases, so that the prop firm can track consistent high performance before providing you with a funded account.

Key Criteria for Evaluating Prop Trading Firms

If you have made it this far, well done! It means you will have read through our introductory sections which explain all about what prop trading is and how prop firms operate. Whether you are completely new to the industry or an experienced trader, the important next step is to properly evaluate the different prop firm options available to you.

To help minimise your research time and maximise your decision-making efficiency, we decided to create a list of the most important points to consider, so you can make a more effective prop firm comparison. Keep reading on to see what we have included in our best prop trading firms criteria.

Capital and Leverage

Look into exactly how much funding is available to you and whether the firm offers scaling plans based on performance. Some companies offer up to $400,000 in trading capital, while others start with much lower amounts. The leverage ratio can also vary significantly between firms depending on the market, so make sure you check through the different margin requirements.

Profit Split Ratio

Make sure you check two things: percentage and structure. First, find firms that offer a generous share of the profits. Most companies feature a 70% or 80% in favour of the trader, but some pay out up to 90% of the profits. Second, review the exact profit split structure. It could either be fixed, tiered (based on profit percentage), or scaled (increased once targets are met).

Fees, Commissions and Minimums

To avoid unexpected charges, dedicate time to note down all the costs involved with each prop firm. In particular, watch out for one-time evaluation fees, monthly platform fees, or additional hidden charges. Also, check through other trading costs that can affect your profitability, like spreads and commissions. A top tip when comparing firms is to add up all the fees before comparing each total against the other.

Evaluation Requirements

Rules are central to the way prop trading firms function, so it is crucial that you are aware of everything before getting started. Ensure you understand all the rules and know what is required to pass so you are better equipped to get through to the funded account stage. Some of the most common evaluation requirements include profit targets, set time limits, daily loss thresholds, and minimum trading days.

Payout Frequency and Methods

Finding a firm that has frequent and reliable payouts is extremely important. That’s why getting all the key details is vital when visiting a company’s website. You should check how often payouts are processed, what withdrawal methods are available, and whether there’s a minimum threshold you need to meet. Some firms provide instant payouts, while others take much longer. When it comes to payouts, reliability takes priority over speed.

Platform Features and APIs

Any reputable prop firm will provide access to a recognised trading platform like MT4, MT5, cTrader, or TradeLocker. Once this is established, it is worth finding out the full range of features that come with your account in order to ensure the platform meets your trading needs. Check for a range of built-in tools including custom dashboards, trade analytics, and automated trading options via APIs.Customer Support and Community

A helpful and responsive customer support team is a key factor that separates top prop trading firms from the others. As a trader, it is reassuring to know that support is readily available should you have any questions or issues. Also, some prop firms run their own trading communities on platforms like Discord, allowing you to connect with fellow traders, discuss strategies, and keep updated on the latest company news.

Types of Prop Trading Firms

As the proprietary trading sector has continued to expand and grow in popularity, a number of different types of prop trading firms have emerged. These firms generally fall into two distinct categories. There are companies that operate an evaluation-based structure, while others skip the challenge stage and provide instant funding to traders. Now we have identified the two types of prop firm structures, let’s take a look at what they involve.

Evaluation-Based Firms

The most common model currently adopted by prop firms is evaluation-based prop trading. This typically involves traders completing a demo challenge to prove they are able to manage risk and meet certain profit targets. Successful traders are then able to gain access to a funded account and start receiving real money payouts. Through this approach, the most disciplined prop traders can unlock funding through consistent high performance.

Instant Funding Firms

Instant funding prop firms have a more straightforward structure as they skip the challenge stage, instead offering direct access to trading capital. Traders pay a one-time fee to get started straight away. However, these accounts usually come with restrictions like tighter drawdown limits, lower initial account sizes, and limited to no scaling options. While these firms offer speed and convenience, they may include stricter rules or higher trading costs.

Evaluation-Based vs. Instant-Funding – Key Differences

Pros and Cons of Trading with a Prop Firm

So now you are aware of the two main types of prop trading firms, you should be in a better position to decide which model suits your trading strategy. However, it is also worth knowing about the various different positives and negatives associated with prop trading before registering an account.

Choosing between evaluation-based and instant funding prop firms depends on  your precise trading style, experience level, and various risk preferences. Both structures have their own strengths and weaknesses, so it is crucial that you properly weigh up these factors in order to make a properly informed decision.

In the table below, we have highlighted the major advantages of prop trading firms, while also focusing on the most notable prop firm drawbacks. By displaying it in this way, we hope it will present you with an easy-to-understand, well-rounded overview of the pros and cons of trading with a prop firm.

How to Choose the Right Prop Trading Firm for You

With the proprietary trading market expanding at such a rapid pace, traders are now inevitably faced with more choice than ever. So many prop firms have emerged recently, each with their own training conditions, specific structures and online reputations. 

Cutting through all the glossy marketing and enticing promotions is no easy task for any trader. Put simply, it can sometimes seem difficult to choose a prop trading firm that’s most suited to your trading style and preferences. It is vital that you don’t lose track of your primary objective of finding the best prop firm for you.

As we have already seen in this article, each firm has its own structure, rules, payout models, and fees. To make the right decision you need to start with the basics, like understanding what matters most to you as a trader. Once that has been clearly established, you can move forward with greater confidence, knowing you’ve made a decision that closely aligns with your goals. You can use the checklist below to help find the best prop firm for traders like you.

Clarify your trading style and timeframe

Take the time to identify your trading strategy so you can choose a style that fits your personality. Are you better suited to scalping, swing trading or day trading? Once you have answered this question, you can search for prop firms matching this style.

Compare funding levels and profit splits

Be across all the key details, as access to capital varies between different firms. Important features to compare include account sizes, scaling plans, and profit splits. While a generous profit share is good, make sure you check the payout frequency.

Trial an evaluation challenge

Before you commit fully, many firms let you test out their evaluation process through free trial demo accounts. This can be a nice way to get a feel for how it all works, so you can get familiarised with the platform in a risk-free environment.

Read community reviews and support docs

See what other traders are saying about a prop firm by checking verified user reviews. You can get a fairly accurate reflection of a company’s reputation by visiting trusted trader forums and popular comparison websites like Trustpilot.

Calculate total cost vs. potential earnings

Weigh up the potential benefits against all the costs involved before reaching a final decision. Factor in the various fees, commissions, and any recurring costs incurred by each prop firm so you can judge whether it is worth your investment.

Explore Our Best Prop Trading Firms 2025

Congratulations on making it through to the end of this ultimate guide to prop trading, we hope you found it useful and interesting. Now that you are armed with all the information you need, you are in a strong position to select the right prop trading firm for you.

But don’t worry, we have that part covered too. We have put together a dedicated article listing the Best Prop Trading Firms 2025 based on hours of independent research and study. Whether you are looking for high profit splits, low fees, or good scaling opportunities, our expert guide is the perfect place to start.

We spent many hours analysing the best prop firms by country, before narrowing down our top five based on the FX Trust Score Index – our very own scoring mechanism. Each company that made the final leaderboard was directly compared against the others across a range of key features. This includes funding limits, profit splits, account rules, evaluation processes, trading conditions, costs and fees – and more.

Conclusion and Next Steps

In this comprehensive guide, we have broken down everything you need to know about proprietary trading. We have examined how prop firms work, compared the different structures, and outlined the main points to look out for. 

To recap, prop trading offers the potential for you to access large sums of money without putting your own funds at risk. However, prop trading success is dependent on multiple factors, such as discipline, risk management, and choosing a firm that matches your trading style.