Prop Trading for Beginners: Everything You Need to Know to Get Started
Trading in financial markets is no longer restricted to institutional investors or large hedge funds. Thanks to the rise of Proprietary Trading Firms (Prop Firms), traders now have access to institutional capital, allowing them to trade with minimal personal financial risk while keeping a large share of the profits.
But many beginners have questions:
- How do you become a successful prop trader?
- What is prop trading?
- How do proprietary trading firms work?
- What is the difference between prop trading and retail trading?
If you’re new to trading and curious about how prop trading works, this guide will explain everything you need to know—from how to start, which firms to join, and the best prop trading strategies, to how prop trading compares to hedge funds and investment banking.
What is Proprietary Trading (Prop Trading)?
Understanding Prop Trading
Proprietary trading, or prop trading, is when a trader uses a firm’s capital to trade financial markets instead of their own funds. In return, the trader keeps a portion of the profits, typically between 70% and 90%, while the firm absorbs all financial risk.
Unlike retail traders, who use their own money and bear full financial exposure, prop traders have the advantage of trading with much larger capital, allowing for higher leverage, bigger trades, and greater profit potential.
Key Insight: Prop trading provides traders with financial backing and advanced trading tools, making it an attractive alternative to traditional retail trading.
How Do Proprietary Trading Firms Work?
Step-by-Step Process of a Prop Firm
- Trader Joins the Prop Firm – Traders apply for a funded account, either by passing an evaluation challenge or paying for instant funding.
- Capital Allocation – The firm provides traders with a funded account, typically ranging from $10,000 to $2,000,000
- Trading Rules & Risk Management – Prop firms set strict trading rules (e.g., maximum drawdowns, leverage limits, and stop-loss requirements).
- Profit Split – Traders keep 70%-90% of the profits, while the firm takes the rest.
- Scaling Plan – Successful traders can increase their capital allocation, scaling up to $2M+.
- Withdrawals & Payouts – Most firms allow traders to withdraw profits every 7-14 days.
How Prop Firms Make Money
Unlike hedge funds, which charge management fees, prop firms only make money when traders are profitable. Their income comes from:
- Profit splits (30%-10%) from successful traders.
- Evaluation fees for traders attempting to pass funding challenges.
- Instant funding fees for traders who skip evaluations.
- Subscription fees for access to proprietary tools and software.
Why It Matters: Unlike traditional brokers that profit when traders lose, prop firms are incentivized to help traders succeed.
Prop Trading vs Retail Trading
| Feature | Proprietary Trading | Retail Trading |
|---|---|---|
| Capital Used | Firm’s money | Personal funds |
| Risk Exposure | Firm absorbs losses | Trader bears full risk |
| Leverage | Higher leverage (1:50 – 1:100) | Limited leverage (1:10 – 1:30) |
| Profit Split | Trader keeps 70%-90% | Trader keeps 100% |
| Risk Management | Firm-imposed rules | Self-managed |
| Scalability | Can scale up to $2M+ | Limited by personal funds |
Best For: If you want to trade with larger capital and reduce personal financial risk, prop trading is a better choice.
Prop Trading vs Hedge Funds vs Investment Banking
| Feature | Proprietary Trading | Hedge Funds | Investment Banking |
|---|---|---|---|
| Who Trades? | Individual traders | Portfolio managers | Institutional clients |
| Capital Source | Firm’s funds | Client investments | Client capital |
| Profit Model | Profit sharing (70%-90%) | Management fees + profit share | Commissions & advisory fees |
| Risk Exposure | Firm takes the loss | Fund absorbs risk | Clients bear risk |
| Regulation | Lightly regulated | Highly regulated | Strictly regulated |
| Best For | Independent traders | Wealthy investors | Corporate finance professionals |
Takeaway: Prop trading is the best choice for independent traders who want to profit without handling client investments.
Best Proprietary Trading Firms for Beginners
| Prop Firm | Profit Split | Evaluation Required? | Markets Available |
|---|---|---|---|
| Instant Funding | 80% – 90% | No | Forex, Indices, Crypto |
| Trade The Pool | 50% – 70% | Yes | Stocks & ETFs |
| FTMO | 80% – 90% | Yes | Forex, Stocks, Indices |
| Maven Trading | 85% | Yes | Forex, Crypto, Indices |
Tip: If you want to start immediately without an evaluation, choose a firm like Instant Funding.
How to Get Started with Prop Trading
Step 1: Learn Trading Basics
Master:
- Technical & Fundamental Analysis
- Risk Management & Position Sizing
- Trading Psychology & Discipline
Step 2: Develop a Strategy
Choose a trading method:
- Scalping – High-frequency, small trades.
- Swing Trading – Holding trades for days/weeks.
- Breakout Trading – Trading on key price levels.
Step 3: Apply for a Prop Firm
- Select a prop firm that matches your market preferences
- Compare evaluation challenges vs instant funding
- Understand the firm’s risk rules and profit splits
Step 4: Pass the Challenge or Start Trading
- If choosing an evaluation, trade carefully to meet profit targets
- If choosing instant funding, start trading immediately
Step 5: Scale Up & Withdraw Profits
- Withdraw profits every 7-14 days
- Increase your account size based on firm scaling plans
Takeaway: Selecting the right firm and strategy is crucial for success in prop trading.
Advantages and Disadvantages of Prop Trading
Advantages of Proprietary Trading
- No Personal Capital at Risk – Traders use the firm’s money instead of risking their own funds.
- Higher Profit Potential – Profit splits range from 70%-90%, allowing traders to keep most of their earnings.
- Institutional-Grade Trading Tools – Access to advanced platforms, real-time data, and professional risk management.
- Scalability – Traders can scale their accounts up to $2M+ with consistent profitability.
- Frequent Payouts – Most firms allow bi-weekly or monthly withdrawals, ensuring regular income.
Disadvantages of Proprietary Trading
- Strict Trading Rules – Firms enforce drawdown limits, leverage restrictions, and stop-loss requirements.
- Profit Sharing Model – Unlike retail trading, traders don’t keep 100% of their earnings.
- Evaluation Challenges – Many firms require traders to pass a test before receiving funding.
- No Passive Income – Prop trading requires active participation and continuous strategy refinement.
- Leverage Limitations – Some firms impose position size restrictions, limiting aggressive strategies.
Final Thoughts – Is Prop Trading Right for You?
Proprietary trading (prop trading) has revolutionized the financial markets, offering traders a unique opportunity to trade with a firm’s capital instead of their own. For traders who are confident in their skills but lack substantial personal funds, prop trading presents an excellent pathway to earning consistent profits with minimal financial risk.
However, prop trading is not for everyone. Understanding risk management, having discipline, and developing a strong strategy are crucial for success. Traders must adhere to strict trading rules, including maximum drawdowns, stop-loss requirements, and leverage limits set by prop firms. Breaking these rules can result in losing the funded account.
Below are some important aspects to consider before joining a prop trading firm:
Who Should Consider Prop Trading?
Experienced traders who have a profitable trading strategy – If you already have a consistent trading method and need more capital to scale up, prop trading is a great option.
Beginners willing to learn and adapt – If you’re serious about trading, many prop firms offer educational resources and structured evaluations to help new traders develop their skills.
Traders who prefer a structured approach – Unlike retail trading, where you set your own risk limits, prop firms have strict guidelines that can enhance risk discipline.
Individuals who want to trade full-time – Prop trading provides an opportunity to earn a sustainable income, often with bi-weekly or monthly payouts.
Scalpers, day traders, and swing traders – Most prop firms support short-term trading styles, making them ideal for active traders.
Who Might Struggle in Prop Trading?
Traders who cannot follow rules – Prop firms impose strict trading guidelines, and violating these rules (such as exceeding the drawdown limit) can result in losing your account.
Traders who lack risk management skills – Even though you’re not using personal capital, poor risk management can lead to frequent failures in prop firm evaluations.
People looking for passive income – Prop trading is NOT passive; it requires active participation and constant strategy refinement.
Traders who need high leverage – Some firms have leverage restrictions, which can limit position sizes compared to retail brokers.
Traders who expect instant success – Just because you get access to capital doesn’t mean you’ll become profitable overnight. Trading success requires patience and skill.ng.
FAQ
1. What is proprietary trading?
Proprietary trading (prop trading) allows traders to use a firm’s capital to trade financial markets instead of their own money. Traders keep a percentage of the profits while the firm absorbs the risk.
2. How do prop firms make money?
Prop firms generate revenue through:
• Profit splits (10%-30%)from traders.
• Evaluation fees for funding challenges.
• Instant funding fees for direct account access.
3. How much can a prop trader earn?
Earnings depend on the account size, profit split, and performance. A trader with a $100,000 account earning 8% monthly can take home $6,400/month (80% profit split).
4. What happens if I violate a prop firm’s rules?
Breaking rules such as exceeding drawdown limits or trading restricted assets can result in account termination or loss of funding.
5. How do I get started with prop trading?
Step 1: Select a reliable prop firm.
Step 2: Choose between an evaluation challenge or instant funding.
Step 3: Develop a consistent strategy and risk management plan.
Step 4: Trade responsibly, follow firm rules, and scale your account.
Step 5: Withdraw profits and continue growing your trading career.
Are you ready to start trading with a funded account? Before starting read our prop firm reviews and choose the best firm that suits your needs.
FTMO offers funding challenges priced between €155 and €1,080, with account sizes ranging from $10,000 to $200,000. The evaluation process includes 2 steps, requiring a 10% profit target in Phase 1 and 5% in Phase 2, while adhering to a 5% daily loss limit and a 10% maximum drawdown. Funded traders receive an 80% profit split, with account scaling increasing by 25% every 4 months for consistent performance. FTMO is highly rated, with a 4.8/5 Trustpilot rating.
Instant Funding offers flexible proprietary trading with account sizes from $1,250 to $200,000 and profit splits up to 90%. Choose from Instant Funding, One-Phase, or Two-Phase models with a scaling plan up to $1.28M. Enjoy weekly payouts, diverse tradable assets, and fast execution on DX Trade, cTrader, and Match-Trader. Rated 4.6/5 on Trustpilot, Instant Funding is a trusted choice for traders seeking fast funding and high earnings potential.
Sabio Trade offers a streamlined 1-step evaluation process with account sizes ranging from $20,000 to $650,000 and profit splits of 80%. Traders benefit from a low-risk environment with 10% profit targets and 5% daily drawdown limits. Powered by the Quadcode platform, Sabio Trade provides access to over 250 assets, on-demand payouts, and top-tier educational resources. Trustpilot Rating: 4.1/5.
Hantec Trader offers flexible funding options ranging from $2,000 to $200,000 with competitive profit splits of up to 90%. With its straightforward 1 or 2-step evaluation models, achievable profit targets, and trust pilot rating of 4.6/5, Hantec Trader stands out as a reliable proprietary trading firm. Traders can enjoy incremental growth opportunities, transparent risk management, and a smooth payout process every 14 to 30 days.
Top Prop Trading Firms,
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