Proprietary firms, also known as prop trading firms, are financial companies that generate income by directly trading on financial markets. Prop firms offer traders funded accounts, where traders have to pass the challenge to become funded and trade for real profits. Understanding the structure and model of prop trading firms is crucial for traders who are seeking to get funded and access considerable trading capital. Let’s explain prop trading firms and how you can use their unique offerings for maximum benefits.
Proprietary Trading Firms Explained
Prop firms have become a cornerstone of modern financial trading, as they offer traders a unique opportunity to access large trading capital and make profits without risking their own money. Proprietary trading firms are unique financial institutions with different business models when compared to traditional brokers or prop firms, they offer funded accounts where traders can access large trading capital and make profits. Prop firms allow traders to withdraw a significant portion of profits made in these accounts and have strict risk management rules to protect their capital from irresponsible trading.
How funded accounts work
The trader signs up and selects funded options (ranging from anywhere between $5,000 to $100,000) according to their experience and budget. Higher funded options typically cost more. Depending on the funded option and challenge type, traders will have to pay a one-time fee or subscribe to a monthly fee model. Forex and CFDs proprietary firms typically require one-time fees, while futures props typically require monthly subscription fees. These fees restart from below $100 for the lowest funded options and can go up to $1,000 and even more for 100k and above options.
A prop trading firm grants credentials to sign in to a demo account with a trading platform, typically provided by a partner broker. Traders then have to trade on this account without breaching the daily risk limit and maximum drawdown rules, while targeting to achieve a certain predetermined profit target. The industry-accepted daily risk limits are between 3-5%, maximum drawdown limits are 6-10%, and the profit target typically ranges between 8-10%. Prop companies have these and sometimes other rules to ensure only responsible traders with viable trading strategies get funded.
Prop Firm Pros
As you would already know, there are many benefits related to using a funded account from a prop company. Here are the main advantages of signing up for a proprietary trading account:
- Access to a large trading capital — prop companies allow traders to gain access to substantial trading capital using funded accounts often ranging from 5,000 to 100,000 dollars and sometimes even more.
- Low personal financial risks — Prop traders are not liable for losses in funded accounts, making it an almost risk-free process.
- High potential returns — having access to a large trading account allows traders to make significant profits when compared to retail accounts where it is difficult to allocate substantial capital.
- Access to technology and education — Many prominent prop companies offer trading courses and market analytics to help their traders succeed. A trader dashboard and various analysis tools are also offered.
- Career opportunities — Successful prop traders can attract investors to gain access to even more capital or get high-paying jobs at prop firms.
Prop Firm Cons
Together with various benefits, prop trading also presents its unique set of challenges:
- Strict rules — Prop trading firms have strict risk rules to protect their capital, which can make it difficult for traders to hit the profit target while maintaining a low-risk profile.
- Limited trading strategies — Because of strict risk rules and other requirements, traders are limited in how many strategies they can employ successfully.
- Market volatility risks — This is universal to all kinds of financial trading. When markets become very volatile it becomes difficult to maintain strict risk control and this is why many prop firms restrict news trading.
The best way to counter challenges associated with prop trading firms is to develop a well-thought-out strategy that has been tested on both historical and live market scenarios on a demo account or free trial prop account. Using an economic calendar, traders can anticipate when high-impact economic news is scheduled to be released and avoid trading during these times.
Prop trading vs. traditional trading — What’s the difference?
Prop trading differs from traditional financial trading. Traders need to accumulate and allocate trading capital to deposit with their broker and start using this capital for trading. Prop trading firms, on the other hand, offer traders funded accounts, accounts with capital on them. This unique offering allows traders to start financial trading and make reasonable profits without the need to allocate considerable financial resources for trading. When traders have an account with a broker, they can easily blow up an entire account, or lose all the money they deposited if they are not careful or trade during very high volatile market conditions. Prop trading allows traders to trade risk-free, as they are not liable for any losses incurred on prop accounts. This unique model of prop trading allows traders to only pay a tiny fee to access the challenge and start the evaluation. The one advantage of traditional trading is there are no rules, and they can choose almost any trading method no matter the risk appetite, while prop firms have strict risk limit rules. So, while the potential profits might be higher with traditional trading, it requires considerably more capital, and more risk-taking, and is exposed to a much higher risk of losing money. Prop traders will only lose the fee they paid for the challenge, and often prop firms will allow them to start over free to pay even less to begin the challenge again.
Since prop companies are different from financial brokers, they are not as strictly regulated. As a result, prop trading is legal worldwide in the majority of countries. Prop firms do not accept client deposits and manage wealth, nor give any trading advice, making them less scrutinized by regulators.
How to evaluate a prop company?
It is critical to evaluate the firm’s safety before signing up for a challenge. This can be done by analyzing the prop firm’s critical features or reading reviews on reliable platforms. Trader reviews are also one of the most effective tools in assessing a prop company’s safety and service quality.
However, it is not enough to assess whether a prop firm is reliable, and there are other critical factors to consider. Prop firms should provide diverse funded account types with a wide range of funded options. This is crucial for a prop company to attract traders with diverse backgrounds. Rules are also important to evaluate to ensure it is realistic to sign up and hit the profit target. Some scam and fraud firms have such strict rules that it is not possible to pass the challenge in a reasonable time. Some scams have hidden rules, preventing traders from actually passing the challenge. Reasonable fees ensure traders can access funded accounts cheaply. Asset diversity allows traders to find their preferred instruments and get a funded status more easily. Access to advanced trading platforms is also important to analyze markets comprehensively and make well-informed decisions. Other important factors include education and support. While education is important for only beginners, customer support is crucial for both beginners and seasoned traders.
How to select a suitable prop trading firm
Selecting the most suited trading prop firms is crucial when considering starting a prop trading career. While safety plays a crucial role in the selection process of reliable prop companies, there are other important factors to consider as well. Different traders have different needs, as they might use different trading strategies and have different favorite trading instruments. The firm might be very reliable and reputable, but if it does not offer your favorite trading instrument, you find it difficult to pass the challenge and get funded quickly. Here is the list of important factors when choosing suitable prop trading firms:
- Safety — Reliability is a top priority when selecting a prop firm. The firm must be experienced, have regulated partners, who provide trading platforms and price data, and accumulate positive trader feedback.
- Rules — Ensuring the firm has no hidden rules and its risk limits are realistic to follow is critical. Scams love to hide some hard breach rules to ensure traders always fail. Daily risk limits should not be below 3% and maximum drawdown is better when above 8%. Also, check that the firm allows your trading style.
- Funded challenges — Reliable prop companies have multiple funded account types to allow traders with diverse strategies to get funded. The smallest funded option should be 5k or even less, while the highest funded options should be 100k and beyond.
- Assets — Asset diversity is valuable for multi-asset traders and gives the firm more credibility. Assets are typically provided by liquidity providers and partner brokers. Ensure the firm offers your favorite instruments at low spreads.
- Platforms — Advanced trading platforms offer custom indicators, automated training robots, built-in calendars, and other important functions. They also have high execution speeds, which is important for scalpers. Ensure the prop company offers any advanced software including MT4, MT5, cTrader, or TradingView.
- Fees — Fees and spreads are crucial in prop trading. Since prop firms have strict rules, it is important to access the lowest spreads possible, ideally from 0 pips on major FX pairs. Competitive funded challenge fees allow traders to access funded challenges and start over if they fail on the first try. The fee on the smallest account should be below 150 dollars.
- Profit-sharing and withdrawals — Profit sharing is how much you can withdraw from your profits. The most popular sharing level is around 80%. Beware firms that claim 100% profit-split, they are usually scams.
- Education and tools — Education is crucial for beginners, while tools provide both beginners and seasoned traders with useful features to measure the performance or analyze markets more accurately.
- Customer support — Support is critical, and reliable prop trading firms should offer live chat and email support channels. Ensure the firm has a live chat or hotline to quickly resolve any issues during trading. Reputable prop firms also offer multilingual support and websites.
How do we compose a rating of prop trading firms?
We emphasize on safety and reliability of prop firms and go through a detailed and complex process to determine whether the firm in question is reliable. We check when it was established to determine if it has sufficient experience in the prop industry to offer quality services. However, the safety does not end here, and we also ensure the firm offers trading services through regulated brokers to avoid price manipulation and low-quality price data. The 3rd important safety factor is trader reviews online. If a substantial percentage of reviews are negative, then the firm might be a scam.
After the safety check, we look for funded account type diversity and funded options range. The firm has to offer low funded amounts from at least 5k to accommodate beginners. The higher funded option should be at least 100,000 and beyond for the firm to be attractive to seasoned traders who seek large trading accounts. After this, we check the rules and how difficult it is to achieve funded status. It is critical to detect if the firm has hidden rules as it is a major red flag for scam firms. Then comes other significant but less critical factors such as asset diversity, trading platforms, fees, spreads, profit-sharing policies and withdrawals, education, tools, and support. Each criterion is evaluated with a 0 to 5 score, and then we calculate the final score using the weighted average method, ensuring that safety has the highest weight.
How often do we review the rankings of prop trading firms?
Having access to extensive prop trading firms rankings is essential to selecting the most suitable prop firms for your trading needs. We add at least 3 prop trading firm reviews daily to ensure all new props are reviewed and assessed for our readers to see. This is critical as there are a multitude of new prop firms created every day, and it becomes a challenge to select a suitable firm that is also safe and reliable. Together with new reviews we also update older ones constantly ensuring all the new specs are included, and older ones edited to provide the most accurate and up-to-date information. All this was possible through an advanced rating methodology that uses a weighted average method to ensure more critical aspects such as safety and profit withdrawals have higher weight when calculating the final score.
How to pass the prop trading firm challenge
Passing the prop trading challenge is a complex task that requires superior discipline and a well-tested trading strategy. Traders need to follow strict risk limit rules and hit the profit target simultaneously, which requires more hard work than trading on a traditional financial account.
Prop firm trading strategies are different from traditional trading, as traders often have to follow super strict rules that limit strategies and risk-taking. Despite differences and limited options for trading methods, prop traders can use various scalping and swing trading strategies in attempts to pass the evaluation. The most viable method for prop trading is scalping methods that allow for higher win rates to eliminate the risks of breaching daily or maximum risk limits. Scalping methods are also very useful to avoid trading during major news and stay compliant with the firm rules.
Trading strategy
To pass an evaluation, traders have to develop a profitable trading strategy that has an edge and can generate consistent profits. A trading strategy is a list of rules that allows traders to open, manage, and close trading positions according to predefined criteria. To develop a trading strategy, traders need to analyze market conditions using technical and fundamental analysis methods and create trading rules for buy and sell orders.
Back-testing and forward-testing
After developing an idea about the rules to open buy and sell trading orders, it is time to test the strategy to ensure it performs as planned. Traders first need to back-test the trading strategy on historical price data to check if the strategy would perform profitably if it was used in the past. However, this is not enough for finding a profitable strategy, as often live-market scenarios differ from back-tested results. Demo trading or opening a free trial prop account is an effective approach to test your strategy in real-market scenarios.
Selecting a suitable prop firm
This is important as different props have different rules and specs. A trader needs to ensure their strategy suits the firm and that the firm is reliable. We have many reliable firms reviewed on this platform and will also list some of them at the end of this guide.
Trading psychology
The only way to become a successful trader is to be very disciplined and stick to your trading strategy rules. A trading strategy is like a checklist for pilots, without following it strictly trading becomes gambling, and it is a matter of time before the trader fails the challenge.
The most reputable prop firms
Our prop trading firms list consists of the most reliable firms that have positive trader reviews and offer trading services through regulated brokers and liquidity providers on advanced platforms. With this prop firms rating table, you can select the most suitable firm that is also reliable.
| Firm | Min funding | Max funding | Min funding fee | Profit share | Daily loss limit | Max loss limit | Profit target |
|---|---|---|---|---|---|---|---|
| FundedBull | 5,000 USD | 250,000 USD | 40 USD | 90% | 4% | 8% | 6% |
| Blue Guardian | 10,000 USD | 200,000 USD | 47 USD | 85% | 4% | 6% | 6-10% |
| Funded Trading Plus | 5,000 USD | 200,000 USD | 119 USD | 80% | 4% | 8% | 8% |
| FTUK | 14,000 USD | 90,000 USD | 99 USD | 80% | None | 8% | 10% |
| The5ers | 5,000 USD | 200,000 USD | 39 USD | 80% | None | 10% | 6-10% |
With these prop firms rated positively by both traders and our rating methodology, traders can be safe and focus solely on trading strategy development.
FAQs on Prop trading firms
What are prop trading firms?
Prop trading firms provide traders with funded accounts, allowing them to trade without risking their own money. These firms set strict risk limits and offer access to large capital, with profits shared between the trader and the firm.
Is prop firm trading illegal?
No, trading with prop firms is not illegal. However, it’s essential to choose a firm that partners with regulated brokers to ensure transparency and safety.
How do we compose a rating of prop trading firms?
Our prop firms reviews are unbiased as we use the advanced methodology to assess the firm’s safety, funded options, rules, fees, assets, platforms, profit-sharing, education, support, and more. We use the weighted average method, ensuring only the safest firms stand out from the bunch.
Which prop trading firm is the most trusted?
Trustworthy prop firms are typically those with positive trader reviews, transparent rules, and partnerships with regulated brokers. The firm’s experience in the industry also contributes to its trustworthiness.
How often do we review the rankings of prop trading firms?
We update our prop trading firms rankings regularly, adding new reviews and refreshing older ones to reflect any changes in the firm’s offerings or market conditions.
