In the rapidly evolving world of finance, proprietary trading, or prop trading, has emerged as one of the most intriguing paths for ambitious traders. While retail trading gained massive popularity during the 2020–2022 boom, many serious traders are turning to prop firms to access larger capital, professional support, and real trading opportunities. But what exactly is prop trading? Why is it becoming so dominant in today’s markets? And how do these firms actually work?
This article provides a comprehensive, no-fluff exploration into the world of prop trading — its origins, models, modern-day relevance, and the truth behind getting funded by a proprietary firm.
What Is Proprietary Trading?
Proprietary trading refers to the act of a firm or financial institution trading financial instruments using its own capital — not client money — to generate profits. In this setup, the firm benefits directly from the gains (and absorbs the losses), rather than earning commissions from client accounts.
In today’s context, however, the term also encompasses a new wave of firms that recruit individual traders, test their skills, and then allow them to trade the firm’s capital under specific conditions. These firms are commonly known as prop firms or funded trader programs.
Key features of modern prop trading:
• Traders are evaluated through challenges or assessments.
• Firms offer leverage and profit splits (usually 70–90% to the trader).
• Risk is tightly controlled via drawdown limits, daily loss caps, and trading rules.
• Traders do not deposit real capital — they pay an entry fee, not at-risk margin.
The Origins of Prop Trading
Prop trading is not a new phenomenon. In fact, it’s been a part of institutional finance for decades.
1980s–1990s: The Investment Bank Era
Major investment banks like Goldman Sachs, Lehman Brothers, and Merrill Lynch operated internal trading desks, where elite traders used the bank’s balance sheet to place large, speculative bets. This was pure prop trading — and often extremely lucrative.
These desks operated without much oversight until the 2008 financial crisis, which led to regulatory pushback and the introduction of the Volcker Rule under the Dodd-Frank Act. This rule essentially banned proprietary trading at commercial banks in the U.S., shifting the landscape significantly.
The New Era: Retail-Accessible Prop Firms
With institutional prop desks retreating post-2008, a new model emerged: retail-accessible prop firms.
These firms, like FTMO, MyForexFunds (before its shutdown), The 5%ers, and TopStep, began offering traders a different proposition:
“Prove that you can trade responsibly and profitably in a simulated environment — and we’ll give you a funded account.”
This model exploded between 2018 and 2023, coinciding with:
• A boom in retail trading apps (MetaTrader, TradingView)
• The rise of algorithmic and systematic trading
• Traders seeking alternatives to risky personal leverage
• A generation of digital-native traders looking for scalable paths
How Modern Prop Firms Work
1. Evaluation Phase
Most firms begin with a challenge, which simulates real market conditions. Traders must hit a profit target (e.g., 10%) without breaching risk limits.
2. Verification
If the trader passes the initial challenge, they may undergo a second verification stage, often with looser rules.
3. Funded Account
Once approved, the trader receives a funded account — technically still a demo account — but with real payouts based on simulated performance.
4. Payouts
If the trader continues to follow the rules and generates profits, they receive regular payouts (typically monthly or biweekly).
Why Prop Trading Is So Popular Today
✅ No Personal Risk
Unlike margin trading, prop traders don’t risk their own funds. If they lose — the worst-case scenario is losing access to the account.
✅ High Potential Leverage
Funded accounts range from $10,000 to $400,000+, offering a scalable way to trade with serious capital.
✅ Psychological Benefits
Knowing that real money is not on the line often helps traders follow discipline and risk management more rigorously.
✅ Skill-Based Advancement
Traders get funded only if they can prove their ability, not based on deposits or luck.
The Downside: Risks and Criticisms
Despite the appeal, not all prop firms are created equal. Some act more like gaming platforms than serious financial institutions.
Common criticisms:
• Unrealistic rules: Some firms enforce rigid stop-losses or time limits.
• Hidden fees: Monthly subscriptions, reset charges, or hidden spreads.
• Scam firms: Non-payouts or black-box metrics for disqualification.
• No real capital: Most accounts are simulations — the real market exposure is questionable in some cases.
Due diligence is essential when choosing a prop firm. Look for transparency, clear contracts, and real user feedback.
Types of Prop Firms
There are several models of prop firms today:
1. Evaluation-Based Firms
• Most popular (e.g., FTMO, The Funded Trader)
• Require passing a challenge
• Offer large funding if successful
2. Instant Funding Firms
• No challenge needed (e.g., E8, Fidelcrest)
• Higher upfront cost
• Often stricter payout conditions
3. In-House or Physical Desks
• Rare today but still exist
• Usually require relocation (e.g., NYC, London)
• Full-time job structure
Common Strategies Used by Prop Traders
Traders in prop firms use a wide variety of strategies. Among the most common:
• Day trading (scalping, momentum)
• Swing trading (trend-based setups)
• News trading (especially in forex/indices)
• Algorithmic systems
• Risk-arbitrage (less common)
Prop firms usually allow trading in forex, indices, commodities, and sometimes crypto. Stocks are less commonly supported due to regulatory complexity.
Top Skills for Success in Prop Trading
To succeed in this field, traders must develop:
• Discipline — to stick to trading plans under pressure
• Risk management — to avoid violating firm rules
• Technical analysis — particularly in short-term trading
• Adaptability — to adjust strategies when markets change
• Record-keeping — to refine and prove consistency
The best traders treat a funded account like a business — tracking performance, journaling, and iterating.
The Future of Prop Trading
The rise of AI-assisted tools, copy trading, and blockchain-based funding could transform the prop model. Some firms already explore real capital replication via liquidity providers — blurring the line between demo-based simulation and real market impact.
Meanwhile, regulatory scrutiny is increasing. Several high-profile firms have been probed by authorities for misleading practices or unclear fund structures.
Still, the prop model — when done ethically — is one of the most powerful, accessible ways for a trader to go professional without large starting capital. But you should start prop trading carefully.
Conclusion: Is Prop Trading Worth It?
For serious traders seeking funded access, structure, and challenge, prop trading represents a genuine opportunity. But it’s not a shortcut to riches — only those with consistency, patience, and discipline will benefit long-term.
Choose your firm wisely. Build your skillset deliberately. And approach prop trading not as a game, but as a serious profession.