Prop firm
A proprietary trading firm, or prop firm, is a company that lets traders trade with the firm's capital rather than their own, keeping a share of any profits in return.
In the traditional model, a prop firm hires traders onto its own desk, trains them, and pays a salary plus a cut of desk profits. The modern online version works differently. You pay a fee — commonly $50–$600 — to attempt a prop firm challenge, a rules-based evaluation on a simulated account. Pass it, and the firm grants a funded account with a profit split commonly between 75% and 90%.
Most online firms never route your trades to a live market. Challenge and funded accounts alike usually run on simulated capital, and the firm pays profit splits out of its own revenue, most of which comes from evaluation fees. That is why the rules — daily loss limits, maximum drawdown, minimum trading days — are enforced strictly: the business model depends on paying only traders who show controlled, repeatable results.
For the trader, the appeal is leverage on skill rather than on savings: a fee of a few hundred dollars buys an attempt at trading a $100,000 account. The trade-off is that you operate entirely under the firm's rulebook, and a single violation — an account breach — ends the account regardless of prior profits.
In a prop-firm challenge
The firm sets every parameter you trade under: the profit target, the loss limits, the timeline, and the permitted strategies. Reading a firm's rulebook closely before paying a fee is commonly cited as the simplest difference between passed and failed evaluations; see what a prop firm challenge is for the full structure.