Beginner's Guide to Prop Firms
Everything you need to know about proprietary trading firms and how to get started in futures trading
A proprietary trading firm (prop firm) is a company that provides capital to traders to trade financial markets. Instead of using your own money, you trade with the firm's capital and share the profits. This allows traders to access larger amounts of capital than they might have personally, potentially increasing their earning potential.
1. Evaluation Process
Most prop firms require traders to pass an evaluation or challenge to prove their trading skills. This typically involves meeting profit targets while staying within risk parameters.
2. Funded Account
Once you pass the evaluation, you receive a funded trading account with the firm's capital. Account sizes can range from $10,000 to $200,000 or more.
3. Profit Sharing
Profits are typically split between you and the firm, with traders often keeping 70-90% of their profits. The exact split depends on the firm and your performance.
- • Access to Capital: Trade with more money than you personally have
- • Reduced Risk: You're not risking your own capital
- • Professional Environment: Access to advanced tools and resources
- • Mentorship: Many firms provide education and support
- • Scaling Opportunities: Successful traders can increase their account size
Drawdown
The peak-to-trough decline in account value
Profit Target
The amount you need to earn to pass evaluation
Risk Management
Strategies to limit potential losses
Leverage
Using borrowed capital to increase position size
Learn the Basics
Understand futures trading, risk management, and market analysis
Practice on Demo
Develop your strategy using paper trading or demo accounts
Choose a Prop Firm
Research different firms and their evaluation requirements
Take the Challenge
Apply your skills in the firm's evaluation process