What is a prop trading firm?

A proprietary trading firm (prop firm) provides traders with capital to trade financial markets. Traders keep a percentage of the profits they generate while the firm takes on the financial risk. Most prop firms require traders to pass an evaluation or challenge before being allocated funds.

How do prop firm challenges work?

Prop firm challenges are evaluation processes where traders must demonstrate their skills by meeting specific profit targets while following risk management rules. Most challenges have 2 phases: Phase 1 with a higher profit target and Phase 2 with a lower target. Once passed, traders receive a funded account.

What is maximum drawdown?

Maximum drawdown is the maximum allowed loss from your account's peak balance. If your account drops below this limit, you fail the challenge or lose your funded account. Common max drawdown limits range from 6% to 12% depending on the firm.

How do profit splits work?

Profit split is the percentage of trading profits that the trader keeps. For example, an 80% profit split means you keep 80% of your profits and the firm keeps 20%. Top prop firms offer splits ranging from 80% to 90%, with some offering up to 100% on the first payout.

What is instant funding?

Instant funding is a program offered by some prop firms that allows traders to skip the evaluation process entirely. You pay a higher fee upfront but immediately receive a funded trading account. This is ideal for experienced traders who don't want to go through a challenge.

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