What is prop firm?
A prop firm is a company that gives access to a funded trading account after a paid evaluation. The trader deposits no capital: they pay evaluation fees, respect risk rules, and keep a share of the profits generated.
The term abbreviates proprietary trading firm, but today it covers two very different realities.
Historic proprietary trading companies operate on the markets with their own balance sheet. They hire salaried traders through a conventional selection process, charge candidates nothing, and provide institutional infrastructure.
Online retail prop firms, which appeared in the second half of the 2010s, work the other way round: selection happens not through an interview but through performance measured in a constrained environment, and that measurement is paid for. It is this model the word designates in very nearly all current searches.
What you are actually buying
A challenge is neither an investment, nor a loan, nor a deposit. No capital is transferred to you at any point. You buy a two-stage service: an evaluation of your trading under constraints, then, if you pass, a contract entitling you to a fraction of the profits calculated on an account the company provides.
That distinction has concrete consequences. You do not own the account and can never withdraw its nominal capital, only the profits. Your right to be paid is a commercial claim on a company: it is worth exactly what that company’s soundness is worth.
The regulatory framework
Most of these companies do not hold client funds in the financial-markets sense and do not execute orders for third parties on a live account. They therefore fall outside investment-firm authorisations, and outside the supervision of the AMF in France.
Direct consequence: in a dispute there is no sector ombudsman, no deposit guarantee, no appeal authority. That is why a firm’s age and its verifiable payment history weigh more, in a buying decision, than the profit split percentage on its home page.
Updated on
Related terms
- Challenge A challenge is the paid evaluation a prop firm sells. The trader must reach a profit target without crossing the imposed loss limits, on a simulated account. Passing it gives access to a funded account.
- Funded account A funded account is the trading account a prop firm allocates once the evaluation is passed. The trader operates under continuing risk rules and keeps a share of the profits, without ever holding the nominal capital.
- Instant funding Instant funding gives access to a funded account on purchase, with no evaluation phase. The trader pays higher fees in exchange, and generally accepts a tighter drawdown along with a progressive profit split.
- Profit split The profit split is the share of gains paid back to the trader on a funded account. It generally sits between 80 and 90 %, and can reach 100 % at some firms through a scaling plan or a promotional offer.