If you’re new to trading, you may have heard the term prop trading or proprietary trading. It sounds advanced, maybe even a little secretive. But in truth, it’s just a method some traders and firms use to make money in the market using their own capital.
This guide breaks it down step by step what prop trading is, how it works, and what it means for someone just starting out.
What Is Prop Trading?
Prop trading means a firm is using its own money not clients’ money to trade financial assets like stocks, options, futures, or currencies. The goal is to profit directly from market moves, rather than earning a commission or fee from customers.
Think of a prop firm as a trader itself, not just a place that helps others trade. The firm backs its own bets. When they win, they keep the profits. When they lose, they take the hit.
Why Do Firms Do This?
Prop trading gives firms a chance to make more money than just charging clients. If they hire skilled traders, use fast systems, and stick to strong risk rules, the potential returns can be large. And since the firm is using its own funds, they don’t have to answer to outside investors or customers.
Some firms also recruit individual traders, give them access to capital, and then split profits. This is where beginners can get involved.
How Does Prop Trading Work?
Prop firms either trade in-house (with full-time salaried traders), or bring in outside traders who work remotely or from shared offices.
Here’s how the general process works:
- Training or Screening: Some firms train beginners. Others want proof of skill first.
- Capital Access: If approved, you get to trade using the firm’s money. The amount depends on the setup.
- Profit Split: You keep a percentage of your profits. The firm keeps the rest.
- Risk Controls: Firms limit how much you can lose each day or month.
The firm benefits when you perform well, so most want you to succeed.
What Can You Trade at a Prop Firm?
This depends on the firm, but common areas include:
- Stocks – Common for U.S.-based prop firms
- Futures – Often includes commodities, indexes, and interest rates
- Options – Some firms specialize in advanced option strategies
- Forex (FX) – Currency trading, often for short-term setups
- Crypto – Growing interest, especially in newer firms
Most beginners start with stocks or futures because there’s more training and tools available.
What Does a Typical Day Look Like?
A day in prop trading is fast. Here’s a basic routine for someone trading U.S. stocks:
- Pre-Market Research (7–9 AM): Look at news, earnings reports, and market gaps.
- Market Open (9:30 AM): Watch for high-volume moves. Place early trades if there’s opportunity.
- Midday (11 AM–2 PM): Market slows down. Fewer trades, more planning.
- Power Hour (3–4 PM): Volume picks up. Some traders close positions or look for late moves.
- Review and Logs (After Market): Check what worked, what didn’t, and why.
Most prop traders use technical analysis, short-term strategies, and follow strict rules.
Can Beginners Really Get In?
Yes. Many prop firms are beginner-friendly, but it depends on the model they use. Here are the most common types:
1. Training + Evaluation Model
- You pay for a course or trial.
- If you pass, the firm gives you capital.
- Example: Some futures and forex firms offer this online.
2. Desk Fee + Payout Model
- You pay a monthly fee for tools and space.
- The firm gives you leverage.
- Often used in physical offices.
3. Salaried Trader Model
- You’re hired as an employee.
- The firm trains you and pays a base salary.
- Common in large, established firms (harder to get into).
Each model has pros and cons. Beginners usually go for training-based setups, which are more open to people with little experience.
How Do Prop Firms Make Money?
The firm makes money when you make money. But that’s not their only source:
- Profit Split – They take a cut of what you earn.
- Training Fees – Some firms charge for evaluations or education.
- Desk Fees – Some charge monthly to cover software and support.
- Commissions or Spreads – Firms may earn from the volume you trade.
Be careful of firms that focus more on fees than actual trading. A good prop firm wants traders who can stay consistent.
What Skills Do You Need?
Even if you’re new, you’ll need a few core habits:
- Discipline: Stick to rules. Don’t chase losses.
- Patience: Wait for the right setups.
- Focus: Trading requires full attention, especially during market hours.
- Risk Control: Know how much to risk per trade. Never gamble.
Most firms will also want you to learn:
- Chart Reading: Understand candles, volume, support, and resistance.
- Order Types: Know when to use limit, market, or stop orders.
- Trading Platforms: Learn the firm’s tools, such as DAS, Sterling, NinjaTrader, or MetaTrader.
What Are the Risks?
Prop trading isn’t easy money. Here’s what to watch out for:
- Loss Limits: If you hit a limit, you may be paused or dropped.
- Desk Fees: Some firms charge fees even if you don’t earn.
- Pressure: Fast markets and real money can lead to stress.
- No Guarantees: You might not get funded, or may lose your spot if you perform poorly.
Start small, practice, and be honest about your comfort with risk. Prop trading is real trading losses hurt, and consistency matters more than one big win.
How to Choose a Prop Firm
Here are six things to look for:
- Clear Rules: Do they explain their loss limits and payout terms?
- Low Fees: Are the fees fair, or do they make more from failed traders?
- Good Reviews: What do current or past traders say?
- Training Support: Do they teach or just test?
- Withdrawal Process: Can you actually get paid without problems?
- Realistic Promises: Be wary of wild profit claims or pressure tactics.
Conclusion
Prop trading can be a way to trade without needing a big personal account. You can learn on the job, access more capital, and grow faster if you stick to your rules.
But it’s not a shortcut. You’ll need time, focus, and steady nerves. Most beginners take months before they become consistent.
Start with practice accounts, study real setups, and read trader journals. If you decide to join a firm, take your time picking the right one.
Frequently Asked Questions About Prop Trading
1. Do I need my own money to start prop trading?
Not always. Some firms let you trade their capital after passing a test or training. Others ask for a small fee or deposit to cover risk or tools.
2. Is prop trading legal?
Yes. Prop trading is legal in most countries, but firms must follow market rules. Make sure any firm you join is registered or well-known in your region.
3. Can I work remotely with a prop firm?
Yes. Many firms allow remote trading, especially in forex or futures. You’ll need a strong internet connection and a reliable computer.
4. What’s the typical profit split?
It ranges from 50/50 up to 90/10 in your favor. Higher splits often come after proving you can trade consistently.
5. How much can I make as a prop trader?
It depends on your skill, capital size, and risk level. Some traders earn a few hundred a month starting out. Others grow to full-time income after a year or more.
6. Can I fail the evaluation or lose funding?
Yes. If you break rules or lose too much money, the firm can stop your account. That’s why risk control is key.
7. Is prop trading the same as day trading?
Prop trading often includes day trading, but not always. Some firms allow swing or longer-term positions. It depends on the firm’s style.
8. What’s the best market for beginners?
Most beginners start with stocks or futures. They offer structure, training options, and better support tools than crypto or forex.
