Prop Firms 101 2026: Complete Beginner's Guide to Proprietary Trading
Learn everything about prop firms in this complete beginner's guide. Prop Firms 101 covers how proprietary trading works, evaluation challenges, funded accounts, profit splits, and everything you need to know to get started with prop trading in 2026.
Complete beginner's guide to proprietary trading firms. Source: Unsplash
What Are Prop Firms?
Prop firms (proprietary trading firms) are companies that provide traders with capital to trade financial markets. Instead of using your own money, you trade with the firm's capital and share profits—typically keeping 70-90% of gains. The firm's capital is at risk, not your personal funds.
Key concepts:
- Funded Accounts: Trading accounts funded by the firm, not your money
- Evaluation Challenges: Tests you must pass to receive funded accounts
- Profit Splits: You keep 70-90% of profits, firm keeps 10-30%
- Risk Management: Firms protect capital through rules and limits
Prop firms have revolutionized trading by allowing skilled traders to access substantial capital without significant personal investment. Learn more about prop firms and how they work.
How Prop Firms Work: Step by Step
Choose a Prop Firm
Research and select a prop firm that matches your trading style, preferred markets (forex, futures, stocks), and geographic location. Consider: funding amounts, profit splits, evaluation requirements, trading rules, payout reliability, and customer support.
Popular choices include FTMO (forex), Apex Trader Funding (futures), and FundedNext (scaling). Use our comparison tool to find the best fit.
Pay Evaluation Fee
Pay a one-time evaluation fee (typically $50-$500 depending on account size) to take a challenge. This fee gives you access to a demo account where you'll demonstrate your trading skills. Evaluation fees are non-refundable but are required to proceed.
Smaller accounts ($10K-$25K) have cheaper evaluations ($50-$100), while larger accounts ($100K+) have more expensive evaluations ($200-$500). Some firms offer discounts or promotions.
Pass the Evaluation Challenge
Complete the evaluation challenge by meeting requirements: profit targets (usually 8-10% of account size), maximum drawdown limits (usually 5-10%), minimum trading days (often 5-10 days), and consistency rules (varies by firm).
Evaluation challenges test your ability to be profitable and manage risk. You're trading on a demo account, so the firm's capital isn't at risk during this phase. Passing demonstrates you can trade profitably with proper risk management.
Receive Funded Account
After passing the evaluation, you receive a funded account with the firm's capital. You can now trade with real money, but the capital belongs to the firm. You must continue following trading rules and risk management guidelines.
Funded accounts come with the same rules as evaluations: drawdown limits, profit targets for scaling, and trading restrictions. Violating rules can result in account closure, so maintain discipline.
Trade and Earn Profits
Trade profitably on your funded account. When you generate profits, they're split according to your agreement: typically 70-90% to you, 10-30% to the firm. Payouts are typically bi-weekly or monthly.
Example: If you make $10,000 profit with a 90/10 split, you keep $9,000 and the firm earns $1,000. The more you trade profitably, the more you earn. Some firms offer scaling programs to increase account size over time.
Understanding Evaluation Challenges
Profit Targets
Profit targets require you to achieve a specific profit percentage (usually 8-10% of account size) within the evaluation period. For example, a $10K account might require $800-$1,000 profit, while a $100K account might require $8K-$10K profit.
Profit targets test your ability to generate consistent profits. They're challenging but achievable with good trading skills and risk management. Meeting profit targets is the primary requirement for passing evaluations.
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Drawdown Limits
Drawdown limits protect the firm's capital by restricting maximum losses (usually 5-10% of account size). For example, a $10K account might have a $500-$1,000 maximum drawdown, while a $100K account might have a $5K-$10K maximum drawdown.
Exceeding drawdown limits results in evaluation failure. Effective risk management is crucial to stay within limits while pursuing profit targets. This teaches discipline and proper position sizing.
Minimum Trading Days
Most evaluations require minimum trading days (often 5-10 days) to prevent quick profit-taking and ensure consistent trading. You must trade on at least the minimum number of days, even if you've already met profit targets.
Minimum trading days ensure you demonstrate consistent trading ability rather than luck. This requirement prevents traders from passing evaluations through single large wins without consistent performance.
Consistency Rules
Some firms have consistency rules requiring profits to be distributed across multiple days rather than concentrated in single days. This ensures steady, sustainable trading rather than risky all-in strategies.
Consistency rules vary by firm. Some firms don't have consistency rules, while others require profits spread across multiple days. Check firm-specific rules before starting evaluations.
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Getting Started: Tips for Beginners
1. Start with Smaller Accounts
Begin with smaller accounts ($10K-$25K) which have easier requirements and lower evaluation fees. This allows you to learn the process, understand firm rules, and build confidence before attempting larger accounts. Smaller accounts are perfect for learning prop trading fundamentals.
2. Master Risk Management
Risk management is crucial for prop trading success. Learn proper position sizing, use stop losses, respect drawdown limits, and never risk more than you can afford to lose (even though it's the firm's capital). Good risk management is the foundation of profitable trading.
3. Understand Trading Rules
Each prop firm has specific trading rules: drawdown limits, profit targets, allowed trading styles, restricted strategies, and payout processes. Read and understand all rules before starting evaluations. Violating rules can result in account closure, even if you're profitable.
4. Practice Before Evaluating
Practice your trading strategy on demo accounts before attempting prop firm evaluations. Ensure you can consistently meet profit targets while staying within drawdown limits. Practice builds confidence and improves your chances of passing evaluations on the first attempt.
5. Choose the Right Firm
Select a prop firm that matches your trading style, preferred markets, and skill level. Consider: funding amounts, profit splits, evaluation difficulty, trading rules flexibility, payout reliability, and customer support. Use our comparison tool to find the best fit.
Frequently Asked Questions
Do I need experience to start with prop firms?
While experience helps, prop firms are accessible to traders of various skill levels. Beginners can start with smaller accounts ($10K-$25K) which have easier requirements. However, you should have basic trading knowledge, understand risk management, and be comfortable with your trading strategy before attempting evaluations.
How much do prop firms pay?
Prop firms typically offer profit splits of 70-90% to traders, meaning traders keep 70-90% of profits while firms keep 10-30%. Top firms offer 90% profit splits. Payouts are typically bi-weekly or monthly. The amount you earn depends on your trading performance and account size.
What happens if I lose money on a funded account?
If you lose money on a funded account and exceed drawdown limits, the account may be closed. However, you don't owe the firm money—the firm's capital is at risk, not yours. You can typically retake evaluations (often with discounts) or try different firms. Losses are part of trading, and firms account for this in their business models.