How to Start Prop Trading: A Practical Beginner’s Guide

Proprietary trading — commonly known as prop trading — is quickly becoming one of the most accessible and scalable ways for retail traders to move toward professional-level trading. Unlike traditional brokerage models, prop trading firms provide access to capital, structure, and a path to growth without requiring large personal deposits.

But where should you start? What does the process actually involve? This guide breaks down the key steps to becoming a funded prop trader — from understanding the basics to passing evaluations and growing a funded account.

What Is Prop Trading?

Prop trading involves trading financial instruments — such as forex, indices, commodities, or crypto — using a firm’s capital, not your own. The firm shares profits with the trader, typically offering 70–90% profit splits, depending on performance and payout rules.

There are two broad types of prop trading firms:

• Institutional desks (less accessible to individuals)
• Retail prop firms (remote, challenge-based access)

In this guide, we focus on the latter — retail-accessible prop firms, such as FTMO, The Funded Trader, MyForexFunds (RIP), and others.

How to Start Prop Trading: What You Need Before You Begin

Before diving into evaluations and trading firm capital, it’s important to prepare yourself — both technically and mentally — for what prop trading actually requires. Unlike casual retail trading, proprietary trading is structured, rule-driven, and focused on long-term consistency over quick wins.

To get started in prop trading, you’ll need to understand four key foundations:

• Knowledge of financial markets — This includes basic concepts like leverage, margin, risk-reward ratio, drawdowns, and order types.

• A tested trading strategy — You must have a system that works over time and can withstand strict risk management conditions.

• Capital to pay for an evaluation — While you don’t invest personal funds for trading, most firms charge a one-time challenge fee.

• The right mindset — Prop firms reward discipline and rule-following, not aggression or gambling.

If you’re already trading live or on demo accounts and see consistent progress — prop trading might be the next natural step. But if you’re new, take the time to study, practice, and understand the structure before applying.

Step 1: Understand How Prop Firms Work

Modern retail prop firms operate under a challenge model, which allows traders to prove their skills in a demo environment before receiving access to a funded account.

Here’s how the process generally works:

Evaluation/Challenge Phase

You pay an entry fee and receive access to a demo account with simulated capital (e.g., 50,000 or 100,000). Your task is to:

• Hit a predefined profit target (e.g., 8–10%)
• Stay within risk rules (e.g., daily loss limit, max drawdown)
• Trade a minimum number of days

Verification/Phase 2 (in some firms)

Some firms require a second round with looser targets to confirm consistency.

Funded Account

If you pass the challenge(s), you receive a funded account — which may still be demo-based, but your performance is monitored, and you receive real payouts from the firm’s capital.

Step 2: Choose the Right Prop Firm

Not all firms are created equal. Before joining, carefully research the firm’s:
• Reputation and reviews (check Trustpilot, Reddit, Discord)
• Profit split terms (some firms pay monthly, others bi-weekly)
• Evaluation rules (look for realistic drawdowns and no unfair resets)
• Customer support (response speed, refund policy, account handling)

Here are some top-rated prop firms (as of 2025):
• FTMO – known for reliability and fast payouts
• The Funded Trader – offers unique account types and competitions
• TopStep – focused on futures trading
• E8 Funding / FundedNext / Lux Trading Firm – newer firms with flexible conditions

Pro tip: Start with a smaller account to test the firm before committing to larger capital.

Step 3: Build and Test a Reliable Trading Strategy

No amount of capital or challenge optimization can compensate for a poor trading system.

To succeed in prop trading, you need a proven strategy that works consistently under pressure. Focus on:
• Risk-reward ratio (aim for setups that offer at least 1:2)
• Win rate and trade frequency
• Risk management — don’t risk more than 1–2% per trade
• Defined rules — entry, exit, stop loss, take profit

Commonly used prop trading strategies:
• Breakout trading (great for indices like NAS100)
• London session scalping (for forex pairs)
• News event trading (with strict risk protocols)
• Trend-following strategies (on H1 and H4 timeframes)

Before attempting any challenge, backtest your strategy and demo trade until you achieve at least 3–4 weeks of consistent profitability.

Step 4: Pass the Prop Firm Evaluation

To pass the challenge:
1. Follow the rules strictly — Most failures are from breaking drawdown or over-leveraging.
2. Don’t rush to hit the profit target — Slow, steady growth is safer.
3. Trade only your best setups — Avoid random trades just to reach the target.
4. Use a journal — Track trades, psychology, mistakes.
5. Limit overtrading — More trades don’t mean better results.

Some traders prefer algorithmic or semi-automated systems to pass evaluations — these can be effective but must be allowed by the firm’s rules.

Step 5: Maintain and Grow a Funded Account

Once funded, the real journey begins.

Now your focus shifts to:
• Consistent returns — even 3–5% monthly is excellent
• Protecting the account — avoid breaking firm rules
• Scaling — many firms offer capital increases over time
• Withdrawing profits — stick to a payout schedule

Remember: funded accounts often still use a simulated trading environment, but the payouts are real. Treat the account like it’s your own capital.

Also, review your firm’s rules about:
• News trading
• Weekend holding
• Trailing drawdown
• Max lot size or EA usage

Violations can lead to account termination, even if you’re profitable.

Bonus: Tools and Platforms for Prop Traders

To increase your chances of success:

• Use MetaTrader 4 or 5, cTrader, or TradeLocker (depending on firm)
• Analyze with TradingView
• Track performance with tools like MyFxBook or Edgewonk
• Journal your trades in Notion or TraderSync
• Learn from Discord communities and YouTube walkthroughs

Common Mistakes to Avoid

• Trading without a strategy
• Ignoring firm rules
• Over-leveraging
• Jumping into large accounts with no experience
• Failing to review and learn from losses

Starting small, focusing on discipline, and building repeatable systems are the keys to long-term prop trading success.

Conclusion: Starting Prop Trading the Smart Way

Prop trading offers a unique opportunity for independent traders to scale their skills without risking their life savings. But it’s not a shortcut — it’s a professional challenge that demands preparation, discipline, and consistency.

If you’re serious about trading, the prop model could be your best path forward. Follow the steps in this guide, take your time, and always treat trading like a business — not a bet.