What Are Prop Firms and How Do They Work? Complete Guide
What are prop firms? Proprietary trading firms (prop firms) provide traders with funded accounts to trade the markets using the firm's capital instead of their own. In exchange, traders share a percentage of their profits with the firm. This model has revolutionized trading access, allowing skilled traders to manage significant capital without personal financial risk. This guide explains exactly how prop firms work, their business model, and how to get started in 2025.
This guide explains exactly what prop firms are, how they work, and whether they're right for you in 2025.
What Are Prop Firms?
A prop firm (proprietary trading firm) is a company that provides traders with capital to trade financial markets. You don't invest your own money. Instead, you prove your skills through an evaluation, then trade the firm's funds.
The concept is simple:
- You pay a one-time evaluation fee
- Pass a trading challenge to prove your skills
- Get access to a funded account (typically $10,000 to $500,000)
- Keep 70-95% of the profits you generate
Prop firms take the other percentage as their share. They also keep the evaluation fees from traders who don't pass. This business model lets them fund thousands of traders worldwide.
How Do Prop Firms Work?
The process follows a clear structure at most prop firms.
Step 1: Choose Your Account Size
Most firms offer account sizes from $10,000 to $200,000+. Larger accounts cost more to evaluate but offer higher profit potential.
TradersYard starts at just $39/€36 for their entry-level evaluation. This makes testing your strategy affordable.
Step 2: Pass the Evaluation
Evaluations test your trading skills under real market conditions. You'll need to:
- Hit a profit target (usually 8-10%)
- Stay within daily loss limits (typically 4-5%)
- Respect maximum drawdown rules (usually 10-12%)
- Trade for a minimum number of days
Some firms use two-phase evaluations. Others like TradersYard offer one-step challenges that get you funded faster.
Step 3: Get Funded
Once you pass, you receive a funded account. This is typically a demo account connected to the firm's capital. Your profits are real, but you're not risking the firm's actual funds until you've proven consistency.
Step 4: Trade and Withdraw Profits
Trade according to the firm's rules. When you're profitable, request a withdrawal. TradersYard processes payouts in under 4 hours, the fastest in the industry.
The Evaluation Process Explained
Understanding the evaluation is crucial. Most traders fail because they don't prepare properly.
Here's what happens during a typical evaluation:
- Profit Target: You need to make 8-10% profit on your account
- Daily Loss Limit: Lose more than 4-5% in a single day and you fail
- Max Drawdown: Your account can't drop more than 10-12% from the starting balance
- Minimum Trading Days: Most firms require 5-10 active trading days
The evaluation exists to filter out gamblers and reward consistent traders. If you can't pass the challenge, you probably shouldn't be trading large capital anyway.
Pro tip: Trade the evaluation exactly like you'd trade a funded account. Many traders over-leverage during evaluations, pass, then blow the funded account using the same risky approach.
Profit Splits and Payouts
Profit splits determine how much money you keep. Industry standard ranges from 70% to 95%.
Here's a quick comparison:
- TradersYard: 80% standard, up to 95% with scaling
- FTMO: 80% standard, up to 90% scaled
- FundedNext: 80-90% depending on account type
- The5ers: 50-100% (varies widely by program)
But profit split isn't everything. A firm with 80% splits and fast payouts beats a firm with 90% splits that takes two weeks to pay you.
Payout frequency matters too. Some firms pay weekly. Others pay bi-weekly or monthly. TradersYard offers on-demand payouts, meaning you can withdraw whenever you want.
Why Traders Choose Prop Firms
Trading your own capital is stressful. Every losing trade affects your rent money. Prop firms remove that pressure.
Access to More Capital
Most retail traders have $5,000-$20,000 to trade. Prop firms give you access to $100,000 or more. This means your winning trades generate real income instead of pocket change.
A 5% monthly return on $10,000 is $500. The same return on $100,000 is $5,000. Same skill level, 10x the reward.
Limited Personal Risk
Your maximum loss is the evaluation fee. If you blow a funded account, you don't owe the firm money. You just lose access to that account.
Compare this to trading your own $50,000. One bad month could wipe out years of savings.
Professional Trading Environment
Prop firms force you to follow rules. Daily loss limits and drawdown caps create discipline. Many traders become more consistent simply because they have to respect risk parameters.
Scaling Opportunities
Prove yourself and your account grows. TradersYard's scaling program lets you grow from $10,000 to $500,000 based on consistent performance.
How TradersYard Works
TradersYard is an Austrian-based prop firm that's become popular for its trader-friendly approach.
Here's what sets them apart:
- Entry Cost: Starting from just $39/€36
- Payout Speed: Under 4 hours (industry's fastest)
- Profit Split: 80% standard, up to 95% scaled
- Evaluation: One-step challenge available
- Time Limit: No time limit on evaluations
- Scaling: Up to $500,000 in capital
The no time limit feature is huge. Other firms fail you if you don't hit targets within 30-60 days. TradersYard lets you take your time and trade your strategy properly.
Check TradersYard's complete rules to see exactly what's expected during the evaluation.
Frequently Asked Questions
Are prop firms legit?
Yes, legitimate prop firms are real businesses that pay real money. TradersYard is registered in Austria with EU-level regulatory oversight. Always verify a firm's registration before paying for any evaluation.
The key is choosing established firms with proven payout records. Check Trustpilot reviews and look for actual withdrawal proof, not just social media hype.
How do prop firms make money?
Prop firms earn through two main sources:
- Evaluation fees: Most traders don't pass, so the firm keeps these fees
- Profit splits: They take 5-30% of successful traders' profits
This model works because most traders fail evaluations. The fees from unsuccessful attempts fund the payouts to successful traders.
What is the profit split at prop firms?
Most firms offer 70-90% profit splits. This means you keep 70-90% of every dollar you make trading. TradersYard offers 80% standard with up to 95% available through their scaling program.
Higher splits aren't always better. Consider payout speed, rules, and support quality too.
Do I need to pass a test to get funded?
Yes, most prop firms require you to pass an evaluation. This proves you can trade profitably while managing risk. Some firms offer "instant funding" but charge much higher fees and have stricter rules.
The evaluation protects both you and the firm. It confirms your strategy works before you're given real capital.
Do prop firms actually pay out?
Reputable prop firms absolutely pay out. TradersYard processes withdrawals in under 4 hours. FTMO, FundedNext, and other established firms also have solid payout records.
Always research payout proof before choosing a firm. Look for verified Trustpilot reviews and independent trader testimonials.
Getting Started
Ready to trade with prop firm capital? Here's your action plan:
- Practice first: Make sure your strategy is profitable on a demo account
- Choose your firm: Compare rules, costs, and payout speeds
- Start small: Take the cheapest evaluation to test the platform
- Trade your strategy: Don't change your approach just because it's an evaluation
- Scale up: Once funded, focus on consistency to unlock higher capital
Prop firms aren't for everyone. If you're not already profitable on a demo account, you're not ready. But if you have a proven strategy and need more capital, prop firms offer the fastest path to trading significant money.
Start your TradersYard evaluation today and get funded with capital up to $500,000.
