What is a Prop Firm?
A proprietary trading firm (prop firm) is a company that provides skilled traders with capital to trade financial markets. In exchange, traders are typically evaluated through a trading challenge or demo phase to demonstrate their skills and risk management. Once approved, they are given a live trading account with the firm’s money and share in the profits.
How Prop Firms Work:
- Evaluation Process: Traders must pass an evaluation to prove their trading skills, consistency, and ability to manage risk.
- Access to Capital: Upon successful evaluation, traders are given access to a funded account with the firm’s capital, often up to $200,000 or more.
- Profit Sharing: Traders earn a percentage (usually 70%-90%) of the profits they generate, while the firm retains a portion.
- Risk Management: Prop firms set strict risk management rules to protect their capital. Traders must stay within drawdown limits to avoid losing their funding.
Why Join a Prop Firm?
- No Personal Risk: Trade with the firm’s money, so you’re not risking your own capital.
- Larger Capital: Trade with more significant funds than you could on your own.
- Profit Potential: Share in the profits, which can lead to substantial earnings without having to invest personal capital.