Have you ever felt stuck as a trader because your account is too small to make real profits?
You’re not alone—most beginners face this challenge, and it can feel like you’re spinning your wheels.
What if you could trade with $20,000 or even $100,000 without risking your own money? That’s where prop firms come in, offering a way to scale your trading and keep most of the profits.
In this guide, I’ll explain what prop firms are, how they work, their pros and cons, and why they might be your next step to trading success.
What Are Prop Firms?
Prop firms, short for proprietary trading firms, are companies that give traders money to trade in markets like stocks, forex, or futures. In return, they take a share of the profits you make.
Unlike regular trading, where you use your own cash, prop firms fund you after you pass a test called a “challenge.” This test proves you can make money while following their rules, like not losing too much in a day. Once you pass, you trade their capital—say, $20,000—and keep 50-90% of the profits, depending on the firm.
For example, let’s say you have a $1,000 account and make 5% a month—that’s $50. With a prop firm’s $100,000 account, that same 5% becomes $5,000, and you might keep $4,000 after their cut. It’s a way to grow your trading without needing a big personal account, which is why many beginners are drawn to prop firms.
How Do Prop Firms Work?
Here’s the basic process to get started with a prop firm:
- Practice First: Build a strategy in a demo account until you can make 5% a month consistently.
- Pick a Firm: Choose one that fits what you trade—some focus on stocks, others on forex or futures. Find the steps on how to join a prop firm here.
- Pay a Fee: This can be $39 to $1,500, depending on the account size, like $20,000 or $100,000.
- Pass the Challenge: Trade a demo account to hit a profit goal, like 8%, while keeping losses low, like 5% total. You might have 30-100 days to do this.
- Get Funded: If you pass, you trade their money and split the profits—usually 50-90% for you.
- Grow Your Account: Keep trading well, and some firms let you scale up to bigger accounts.
The catch? You have to follow their rules, like daily loss limits, or you’ll lose the account. But if you do well, it’s a low-risk way to trade big.
Pros of Prop Firms
- Big Capital: Trade $20,000 or more without using your own money.
- Low Risk: Losses are on the firm, not you, if they’re legit.
- Pro Tools: Get platforms like TradingView, real-time data, and sometimes coaching.
- Growth: Good traders can scale to millions in funding over time.
- Learn Discipline: Rules teach you to manage risk better.
Cons of Prop Firms
- Tough Challenges: Most beginners fail—80-90% don’t pass due to strict rules or lack of skill.
- Pressure: Profit goals and loss limits can make you trade recklessly if you’re not ready.
- Scams Exist: Some firms promise big wins but don’t pay—check reviews first.
- Fees Add Up: If you fail a $195 challenge, you pay again to retry.
- Style Limits: Some firms don’t let you hold trades overnight, which can clash with your strategy.
Behind the Scenes: Simulated Trading and Revenue Strategy
Many prop firms, such as Noctorial, keep you in a simulated account even after passing their evaluation—your trades aren’t in live markets. When you make profits, they pay you directly from their own money, but their business often depends on most traders failing the challenge and repaying to try again. Since 80-95% don’t pass, these firms earn a lot from retry fees, and even successful traders might hit withdrawal caps. Always confirm whether a firm uses real or simulated trading.
5 Things Beginners Often Don’t Understand
Prop firms can be confusing at first. Here are five things new traders often miss:
- Strict Loss Limits: You can’t lose much—like $60 a day on a $3,000 account—or you’re paused, even after funding.
- Profit Isn’t Easy: Hitting 8% includes fees and slippage, where you might pay $50.10 instead of $50.
- Buying Power Isn’t Cash: $3,000 buying power means $1,500 to trade with leverage, not the full amount.
- Market Restrictions: Some firms limit you to stocks or futures—not everything works.
- Real Pressure: Trading their money feels harder than a demo, and stress can throw you off.
Are Prop Firms Right for You?
Prop firms are great if you’ve practiced and can make steady profits in a demo—like 5% a month. They let you trade bigger amounts without risking your savings, but you need to be ready for their rules. If you’re still learning, keep practicing in a demo first. If you’re ready to scale, prop firms can be a smart next step.
Which Prop Firms Should You Try?
There are many prop firms out there, but I’ve researched three that stand out for beginners. Trade The Pool is my pick for stock trading, while The 5%ers and My Funded Futures work well for forex or futures traders. Want to see how they compare? Check out my detailed comparison table of these top prop firms to find the best fit for you.
Final Thoughts
Prop firms offer a way to trade with big money while keeping your risk low, but they’re not a quick fix. You’ll need a solid strategy, discipline to follow their rules, and the right firm for what you trade. Start by practicing in a demo, then explore firms that match your goals.
