Prop firm: definition

Funded capital in exchange for rules

A prop firm, or proprietary trading firm, offers to let you trade capital it provides, in exchange for a share of the profits. In the model most common among retail traders, access goes through a paid evaluation, the challenge: a demo account on which you must reach a target without breaching the loss limits.

The usual rules

Figures vary from firm to firm, but you often find a profit target of 8 to 10% in the first phase, a maximum daily loss around 5% and a maximum total loss around 10%, sometimes as a trailing drawdown. Some add a minimum number of trading days or a consistency rule limiting the weight of a single day in the total gain.

Once the evaluation is passed, the trader generally receives 70 to 90% of the profits made.

Points to check

How the daily loss is calculated (on the balance or on open positions), the type of drawdown (fixed or trailing), restrictions around economic announcements and how regularly payouts actually happen. In many of these firms, funded accounts remain simulated accounts: the company's revenue relies largely on challenge fees.

Before paying, it helps to estimate your probability of success from your win rate, your risk-reward ratio and your risk per trade.

Frequently asked questions

Are prop firms regulated in France?

Most aren't authorised investment service providers: they sell an evaluation and a service, not market access. Before paying, check the contracting entity, its country and its terms and conditions.

What percentage of traders pass a challenge?

Firms rarely publish verifiable figures. The available data indicates that a small minority of candidates pass the evaluation, and an even smaller one receives regular payouts.