What is a Prop Firm? Complete Guide for Traders in 2025
A prop firm gives you capital to trade in exchange for a share of profits. Learn how they work, what to look for, and whether they're right for you.
What is a Prop Firm?
A proprietary trading firm (prop firm) provides traders with capital to trade financial markets. In return, the trader keeps a percentage of the profits — typically 80-90% — while the firm takes the rest.
Unlike trading your own money, you only risk the challenge fee (typically $50-$500). If you lose the firm's capital, you simply lose access to the funded account — not your personal savings.
How Do Prop Firms Work?
The typical process has three stages:
- Challenge phase — You pay a fee and must hit a profit target (usually 8-10%) while staying within drawdown limits (usually 5-10% daily, 10% total).
- Verification phase — Some firms require a second, easier challenge to confirm your consistency.
- Funded account — You receive a funded account and start earning a profit split on every withdrawal.
Are Prop Firms Legitimate?
Yes — established firms with thousands of verified Trustpilot reviews like FTMO, The5ers, and FundedNext are legitimate businesses that have paid out millions to traders.
However, not all prop firms are equal. Always check:
- Trustpilot score (aim for 4.0+ with 1,000+ reviews)
- How long the firm has been operating
- Whether the Trustpilot profile is claimed and actively responding to reviews
- Clear, published payout evidence from real traders
What's the Catch?
Prop firms make most of their revenue from challenge fees, not from trader losses. This means they're incentivized to see traders succeed — a paid-out trader is a repeat customer.
The real challenge is the rules. Drawdown limits, daily loss caps, and consistency requirements are designed to filter out gamblers and reward disciplined traders.
How Much Can You Earn?
With an 80% profit split on a $100K account and 5% monthly profit, you'd earn $4,000/month. Many funded traders scale to multiple accounts to increase their income.
Next Steps
Ready to find the right prop firm? Compare all 56 firms ranked by Trustpilot score, or start with our best prop firms for beginners guide.