Prop trading, short for proprietary trading, is where traders use a firm’s money to trade and keep a share of the profits. No personal capital is needed. No major risk from the trader’s own pocket.
With the rise of funded accounts and remote trading, prop firms are now more accessible than ever. Many firms offer capital, structure, and profit splits up to 90%, even for beginners.
This guide explains everything from how prop trading works to how to get started, what strategies are used, and what mistakes to avoid. The goal is simple: give you a full, clear picture of what proprietary trading looks like in 2025, and how to approach it the smart way.
Disclaimer: Educational content only; results vary by trader.
What Is Proprietary Trading?
Proprietary trading is a setup where firms let traders use company funds to trade. The goal is to earn profits for the firm. In return, traders get a share of what they make. No personal capital is needed, but the pressure to perform is real. Firms protect their money with rules, like daily loss limits and strict risk controls. These rules keep things fair and reduce careless trading. Prop trading isn’t about luck. It’s about skill, strategy, and consistency. Many see it as a fast track to serious trading without financial risk on their side.
How Does Proprietary Trading Work?
Prop trading starts with a firm offering capital to skilled traders. Before getting access to live funds, most firms require traders to pass an evaluation. This phase tests strategy, discipline, and risk control. Traders follow set rules like drawdown limits, daily loss caps, and minimum trading days. If they pass, they get funded and start trading real money.
Profits are split based on performance. Some firms offer up to 90% to the trader. The better the results, the more capital the firm may provide. Many firms also offer scaling plans to increase account size over time. Payouts are often made monthly, and some firms allow withdrawals within days.
Everything is tracked through advanced dashboards and trading platforms. Firms monitor risk closely. One mistake can lead to losing the funded account. That’s why consistency matters more than big wins. It’s not about trading more, it’s about trading smart.
Types of Proprietary Trading Strategies
Prop firms don’t rely on luck. They look for traders with solid strategies that protect capital and deliver results. Different traders use different styles, depending on their skill, risk tolerance, and market focus
Scalping
Scalping is a high-speed strategy where trades last seconds to minutes. The goal is to capture small price movements multiple times a day. It requires quick decision-making, low spreads, and strong risk control. Most firms allow scalping but expect tight discipline.
Day Trading
Day traders enter and exit all trades within the same day. This strategy avoids overnight risk and focuses on intraday price action. It blends technical analysis, momentum, and timing. Many funded traders use this for its balance of speed and structure.
Swing Trading
Swing trading targets larger moves that develop over days or weeks. It uses chart patterns, trend analysis, and sometimes news. This style suits traders who want more time to plan each trade. It requires patience and clear stop-loss placement.
Algorithmic Trading
Algo trading uses code to automate entries and exits. Strategies are built, tested, and executed without emotion. It’s highly precise but requires programming knowledge and solid backtesting. Some firms support it; others have platform restrictions.
Arbitrage
Arbitrage takes advantage of price differences between markets or brokers. It’s low risk but harder to pull off in fast-moving environments. Most opportunities are short-lived. This strategy needs speed, automation, and access to multiple feeds.
Advantages and Disadvantages of Prop Trading
Prop trading can be a game-changer, but only for the right kind of trader. Here’s a breakdown of the main benefits and downsides to consider:
Advantages
No personal capital needed
Traders use the firm’s money. Losses don’t come out of the trader’s pocket, which removes a major barrier to entry.
High profit potential
Most firms offer 70% to 90% of profits to the trader. With strong performance, earnings can grow fast.
Structured environment
Firms provide clear rules, targets, and risk limits. This helps traders stay disciplined and consistent.
Scalable accounts
Top firms increase account size over time. As results improve, more capital becomes available.
Remote access
Traders can work from anywhere. All that’s needed is a stable internet connection and focus.
Disadvantages
Strict rules
Daily loss limits, max drawdowns, and trading consistency are enforced. One mistake can end the account.
Pressure to perform
Traders must hit profit targets under tight guidelines. It’s mentally demanding and requires sharp focus.
Upfront costs
Many firms charge fees for evaluations or challenges. These aren’t refundable if the trader fails.
Limited freedom
Not all strategies or trading styles are allowed. Some firms ban news trading, scalping, or weekend holds.
No ownership
Even with profits, the trader doesn’t own the account. The firm controls access and terms.
How to Get Started with a Prop Trading Firm
Joining a prop firm isn’t complex, but it does follow a clear process. Most firms work through a challenge model. Traders must prove their skills before getting access to real funds.
It usually starts with an evaluation phase. This is a demo account with set rules, like hitting a profit target (e.g. 10%) within a limit of losses (e.g. 5%). The trader must also show consistent behavior, not just one lucky trade.
Once the challenge is passed, the trader enters the funded phase. Now, real money is on the line. Profits made here are split with the firm. Payouts happen monthly, weekly, or based on the firm’s terms.
Here’s a quick example:
A firm offers a $50,000 demo account. The trader must make $5,000 profit without losing more than $2,500. If completed successfully, the trader gets a real $50,000 account and earns 80% of any profit going forward.
Many firms also offer scaling plans. If a trader performs well, the account size can grow over time, sometimes doubling or more.
This model rewards skill, not capital. Anyone with a strategy and discipline can apply, regardless of background.
Best Prop Trading Firms in 2025
Not all prop firms are created equal. Some offer better profit splits, others have easier rules or faster payouts. Here are six of the most trusted and active firms in 2025:
- FTMO
- TopStep
- The5ers
- E8 Funding
- MyFundedFX
- True Forex Funds
How Do Prop Traders Make Money?
Prop traders earn through a profit split system. When they make a profit using the firm’s capital, a percentage goes to them. Most firms offer 70% to 90% of the profit to the trader.
For example, if a trader earns $4,000 on a funded account with an 80% split, they keep $3,200. The rest goes to the firm.
Payouts are usually monthly or bi-weekly, depending on the firm. Some even offer instant payouts once a profit target is hit. The more consistent the trader, the higher the earning potential over time.
It’s not about hitting one big win, it’s about steady, controlled profits that follow the rules.
Skills You Need to Become a Successful Prop Trader
Prop trading rewards performance. Talent alone isn’t enough to become a prop copy trader; certain skills are non-negotiable.
- Risk management is first. Know how much to risk per trade. One bad trade should never wipe out your account. Capital protection is a priority.
- Discipline separates winners from losers. Follow your plan. Avoid revenge trades. Stick to the rules, even when emotions kick in.
- Strategy execution is key. Build a system that fits your style whether it’s scalping or swing. Test it. Refine it. Trust it.
- Emotional control matters just as much as technical skill. Pressure will hit. Stay calm. Stay focused. Keep trading decisions logical, not emotional.
- Review and self-audit help traders grow. Keep a journal. Track mistakes. Adjust based on real data, not guesses.
Prop firms don’t need perfect traders. They need consistent ones. Master these skills, and the results will follow.
Prop Trading Rules and Common Mistakes
Prop firms run on structure. To protect their capital, they enforce strict rules. Breaking even one can cost a trader their funded account. Here are the most common rules and the mistakes traders make that break them.
Top 5 Prop Trading Rules
- Maximum Daily Loss
A set dollar or percentage limit you can’t exceed in a day. - Maximum Drawdown
The total loss allowed from peak balance to lowest point. - Profit Target Requirement
You must hit a specific profit within a certain number of trading days. - Minimum Trading Days
Some firms require you to trade for a set number of days to pass evaluations. - No High-Impact News Trading
Some firms restrict trading during major news events due to volatility risk.
Top 5 Common Mistakes That Get Traders Disqualified
- Overleveraging
Risking too much on a single trade to hit targets faster—and wiping out. - Revenge Trading
Trying to recover losses emotionally, which leads to more damage. - Ignoring the Rules
Trading without reading the firm’s specific terms or limits. - No Stop Loss
Skipping risk control and letting a small trade turn into a big loss. - Lack of Patience
Forcing trades just to meet minimum days or profit targets, rather than waiting for clean setups.
Is Prop Trading Legal and Safe?
Yes, prop trading is legal in most countries. Firms operate under contracts, not financial licenses, because they don’t manage outside money. Still, not all firms are safe or honest. Before joining, check reviews, payout proof, and refund policies. Avoid firms with unclear rules or no real support. A good prop firm is transparent, fair, and easy to verify.
Prop Trading vs Hedge Funds
Prop trading uses a firm’s money to trade and earn profits. Traders get a cut but don’t manage client funds. It’s performance-based, fast-moving, and highly individual.
Hedge funds pool investor money and charge fees to manage it. They follow strict regulations and work on long-term returns. Traders in hedge funds are employees, not partners.
Prop trading is lean, flexible, and skill-driven. Hedge funds are slower, bigger, and focused on asset growth.
Keep Reading: A Detailed Guide About Forex Hedge
Should You Join a Prop Firm in 2025?
Prop trading gives traders a chance to grow without risking personal money. It rewards skill, control, and consistency, not guesswork. For those who follow the rules and stay focused, the path can lead to real income and freedom.
The opportunity is there. But success depends on preparation. The better the mindset and method, the stronger the results.
Sharpen Your Trading Skills with Allwin Academy
Allwin Academy is built for traders who want real results. Whether you’re starting from scratch or aiming to pass a prop firm challenge, the academy offers a clear and practical learning path. You’ll gain hands-on skills in chart reading, technical analysis, and strategy building, all designed to help you trade with confidence and discipline. Learn what matters. Practice with purpose. Grow into the trader you’re meant to be. Join Allwin Academy today and start trading smarter.
FAQS
What is prop trading?
Prop trading is when you trade with a firm’s money and keep a portion of the profits you generate.
What is a prop firm in trading?
A prop firm funds traders who pass their evaluation and splits the profits based on performance.
How to get started with prop trading?
Choose a firm, take their trading challenge, follow the rules, and get funded if you pass.
Why do prop firms provide traders with funding?
Because it benefits both sides—traders earn, and firms profit from skilled performance.
Is proprietary trading risky?
Yes, but the risk is on the firm’s capital. You lose the account—not your own money—if you break the rules.
Can beginners apply to prop firms?
Yes, but passing the challenge takes real skill, discipline, and strategy.
Do prop firms actually pay?
Legit ones do. Always check reviews, payout proof, and policies before joining.
What happens if you fail a prop firm challenge?
You lose access to the account. Some firms offer free retries or discounts, but not all.
How much can a funded trader earn?
It depends on the account size, profit split, and consistency, but many earn between $1,000 to $10,000+ per month.
Which prop firm is easiest to pass?
Firms like MyFundedFX and E8 Funding are known for flexible rules, but every trader’s experience is different.
Can you use robots or EAs with prop firms?
Some firms allow bots, but many restrict or ban automated trading. Always read the rules.
How long does it take to get funded?
If you follow the plan, you can get funded in 1 to 4 weeks depending on the firm’s structure.
