Prop Firm
Category
Prop Trading & Funded Accounts
Sub-category
Prop-Firm-Modelle
Curated by
Last reviewed
A prop firm (proprietary trading firm) is a company that gives traders access to firm capital after a paid evaluation. Trading follows fixed risk rules such as a daily loss limit and a maximum drawdown; profits are shared through a profit split of typically 70–90 %. Rules, models, and payout conditions vary substantially between providers.
Context & Mechanics
How the model works
A prop firm provides capital that belongs to the firm – not to the trader. Access usually runs through a paid evaluation: the trader pays a fee (often €100–700) and must hit a profit target in one or two phases without breaching defined loss limits. Common formats are the two-step challenge as well as one-step and instant-funding models.
Typical rules
Almost all providers use a daily loss limit (e.g. 5 % per day), an overall loss limit or maximum drawdown (e.g. 10 %), plus additional rules such as minimum trading days, consistency rules, or restrictions on news trading. Traders who pass all phases receive a funded account and a profit split, historically between 70 % and 90 % in the trader's favour.
Business model and context
A substantial share of many prop firms' revenue comes from evaluation fees paid by failed participants. Most accounts are also run as simulations rather than on live markets. The industry is largely not regulated as brokerage – rules, payouts, and reliability therefore differ widely between providers. Reports of rule changes at short notice or denied payouts are a real risk factor traders should examine before signing up.
Why it matters for traders
The practical bottleneck is rarely the profit target but rule compliance: historically, most participants fail evaluations by breaching drawdown rules, not by lacking profits. Traders who fully understand a provider's rules before signing up and train under realistic conditions significantly reduce the number of paid failed attempts. The GlanWick simulator replicates common prop-firm rules risk-free before money is spent on an evaluation – GlanWick is a training and simulation tool and not a prop firm itself.
Execution Example
A trader pays €500 for a two-step challenge on a $100,000 virtual account (phase 1 profit target: 8 %, daily loss limit 5 %, overall loss limit 10 %).
- Phase 1: the trader reaches +$8,000 (8 %) without losing more than $5,000 on any single day → passed.
- Phase 2: profit target 5 % (+$5,000) with the same loss limits → passed, the funded account is activated.
- Funded phase: the trader makes $4,000 profit; with an 80/20 profit split the trader receives $3,200 and the prop firm $800.
- Breaching any loss limit in any phase ends the challenge; a new attempt requires paying the evaluation fee again (reset).
Execution Risk & Errors
Starting a challenge without fully knowing the provider's drawdown rules
Treating evaluation fees as a one-off instead of a recurring cost
Confusing the provider's static and trailing drawdown
Increasing position size after passing phase 1 and breaching the loss limits
Equating a prop-firm account with a regulated brokerage account
Frequently Asked
Is a prop firm regulated?
Mostly no. Most prop firms are not regulated brokers because participants trade on simulated accounts. Regulators such as the CFTC have published customer advisories on the risks of the model.
How do prop firms make money?
Mainly through evaluation fees, resets, and subscriptions. Since historically the majority of participants fail the evaluation, fees from failed attempts are a core revenue source.
How much does a prop-firm challenge cost?
Depending on account size and provider, usually between €100 and €700 per attempt. Every failed attempt requires a new fee or a paid reset.
Can I practice prop-firm rules in advance?
Yes. The GlanWick simulator replicates common rules such as daily loss limits and trailing drawdown risk-free before a paid evaluation is started.