The Complete Guide to Proprietary Trading: How Prop Trading Works and How Prop Firms Help Traders Profit
1. Introduction
I trade for a living and advise investors. I wrote this guide to show how prop firms work in practice. You will see where the money comes from, what rules matter, and how a trader can get paid. I keep the language clear. I also point out common traps.
Prop trading is simple at the core. A firm backs traders with company capital. The trader follows risk limits and shares profits. The structure looks easy. The details decide who stays funded and who burns out.
I cover both forex and futures setups. I also touch on stocks and multi-asset desks. Platforms matter, so I explain MT4, MT5, cTrader, TradingView, TradeLocker, and Tradovate. I address payouts, proof of identity, and basic compliance. That includes KYC and AML checks that most firms now apply.
Use this as a working manual. If you are new, you will learn the flow end to end. If you already pass challenges, you will find ideas to improve execution and lower risk.
2. Understanding Prop Firms
2.1 What Are Prop Firms
A proprietary trading firm uses its own capital to trade markets. It may invite outside traders to run that capital under firm rules. It is not a broker that earns from client order flow. It is a trading business that aims to keep a stable return with strict risk control.
Prop firms come in several flavors:
- Forex prop firms: currency pairs and indices on platforms like MT4, MT5, cTrader, and TradeLocker.
- Futures prop firms: exchange-traded contracts on venues linked to Tradovate or other futures platforms.
- Stock or multi-asset desks: equities, options, and sometimes crypto via in-house stacks or TradingView links.
Modern retail-facing prop firms grew with cheap tech and remote onboarding. The model scales fast. The weak point is risk and payout management, which I cover later in the guide.
2.2 What Prop Firms Do
The firm provides capital, a platform, and a rulebook. My job as a trader is to hit targets while staying inside limits. The firm tracks every fill, drawdown, and breach. If I break the rules, the account pauses or resets.
Here is what a solid prop firm offers in practice:
- Funding structure: challenge accounts, instant funding, or staged scaling once I show consistency.
- Risk framework: daily loss caps, max drawdown, and trade restrictions during high-impact news if applicable.
- Platforms and data: MT4 or MT5 for wide bot support, cTrader for cleaner depth and order control, TradingView for charts and alerts, TradeLocker for lightweight access, and Tradovate for futures. Latency, spreads, and slippage policies are key.
- Operations and compliance: identity checks, proof of address, and basic AML screening. Some firms also verify strategy style and copy-trade behavior.
- Payout process: split terms, allowed methods, and timing. The faster and cleaner this runs, the healthier the firm tends to be.
A broker license is a different thing. Many prop firms trade under a company agreement with a partner broker or liquidity provider. What I care about is the contract, the tech stack, and the payout record.
2.3 How Prop Firms Work
The flow is standard even if labels differ. I apply. I pass KYC. I select a plan. Then I trade under clear limits. If I meet the target without breaches, I move to a funded or profit-share stage.
- Application: pick account size and platform. Read the rulebook. Check news rules, overnight rules, and weekends.
- Evaluation: one-step or two-step targets with max loss limits. Futures props may run a trailing drawdown. Forex props often use static or equity-based drawdown.
- Funding: live account or profit-share simulation linked to the firm’s risk engine. I keep a share of net gains after fees.
- Scaling: the firm raises cap when I hit steady returns with low variance. Consistency rules can apply.
- Payouts: scheduled windows or on-demand. I confirm identity again if needed and request my split.
Platform choice affects fills and rule checks. EAs and trade copiers run best on MT4 or MT5. cTrader can give tighter control on orders and depth. TradingView helps with clean execution plans and alerts. For futures, Tradovate is common for funded setups.
2.4 Institutional Proprietary Trading
2.4.1 What Is Proprietary Trading?
Proprietary trading, or prop trading, happens when a financial firm trades with its own capital instead of client funds. The desk may buy or sell stocks, bonds, commodities, currencies, or derivatives to earn a return for the firm. This differs from the retail-oriented prop firms in this guide. A broker earns small fees for client service; an institutional prop desk targets direct trading gains.
Firms engage in this when they believe they have an edge in research, market flow, speed, or modeling that can beat passive index exposure or simple bond carry.
2.4.2 How Does Proprietary Trading Work?
An institutional prop desk uses the firm’s balance sheet and acts for the firm itself. Positions can be directional or market-neutral and often run through derivatives for precise exposure and capital efficiency. Desks are ring-fenced from client teams to control conflicts and operate under separate risk limits and tight compliance.
2.4.3 Benefits for a Financial Institution
The primary benefit is keeping 100% of trading gains rather than thin client commissions. Another benefit is inventory. By holding selected securities, the firm can help clients in illiquid periods and support its own market-making in chosen names.
2.4.4 Example of a Proprietary Trading Desk
A large bank or brokerage may run a ring-fenced unit separated from sales and client execution. That unit runs its own strategies and, when needed, steps in as a buyer or seller for size or illiquid instruments—while the information wall between client and prop activity stays intact.
2.4.5 Common Strategy Buckets
Typical playbooks include index and statistical arbitrage, merger arbitrage, volatility arbitrage with options, global macro across rates and FX, and classic fundamental or technical trading. The mix depends on team skill and the risk budget set by management.
2.4.6 Regulatory Considerations
Large U.S. banks face limits on short-term prop trading under the Volcker Rule, introduced after the 2007–2008 crisis to curb speculative bets at systemically important banks. Brokerages and hedge funds not bound by Volcker have more room, but all institutional desks answer to strict internal risk and compliance controls.
2.4.7 Institutional Perspective
Institutional prop trading lets a firm deploy its own capital for direct profit while staying separated from client business. Sound governance, risk control, and clear strategy design decide whether the desk adds durable value or creates avoidable risk. Seeing this side helps traders understand how institutional models differ from retail prop funding.
3. How Prop Firms Make Money
Prop firms exist to turn a profit, and they build several streams of income around that goal. The first and most visible is the evaluation or challenge fee. When I pay to enter a challenge, the firm earns a fixed amount before a single trade is placed. This upfront cash flow helps cover technology, market data, and staffing. Some firms refund the fee if I pass, but the inflow of evaluation fees remains a steady line of revenue.
The second layer comes from the profit split. A firm typically keeps a share of each funded trader’s net gains. The percentage varies but it means the firm earns when I trade well. This structure aligns both sides. They need consistent traders to stay active, and I need the firm to remain solvent and transparent with payouts. Over time, a well-run prop desk can build significant returns from the combined profits of its funded accounts.
Another source is the trading infrastructure itself. Many prop firms partner with brokers or liquidity providers and may receive rebates or volume-based compensation. Some run their own brokerage arm, which can create extra spread or commission income. The exact setup differs. In some cases the prop firm is the counterparty for simulated accounts, managing risk in-house and keeping gains if the trader’s losses exceed the payout level. In others they offset trades in the market and rely on careful hedging and capital management.
Technology and data can also add revenue. Access to premium charting or fast market feeds often carries a built-in margin. Even when a firm advertises “free data,” the cost is factored into fees or profit sharing. Offering extra services like advanced analytics, coaching, or dedicated account managers can create side income without changing the trading core.
Risk control is central to every stream. Daily drawdown limits, consistency rules, and automatic monitoring keep losses contained. By enforcing strict limits and halting non-compliant accounts, the firm protects its capital and keeps the business model profitable. This is why evaluation phases are tough and live trading is closely supervised. It is less about making life hard for traders and more about ensuring that the company does not face uncontrolled risk.
In the end, a prop firm earns money by combining these flows: evaluation fees that cover fixed costs, a share of profitable trading, and smaller but steady gains from partnerships and technology. The stronger the risk management, the more stable these revenues become. For a trader like me, understanding these mechanics is key. It shows how the firm can pay out on time and stay in business long enough for my own strategy to compound.
4. Legitimacy and Regulation
4.1 Are Prop Firms Legit?
Many traders ask if prop firms are legitimate businesses. From my experience, the answer depends on how each company is structured and how it handles its capital. A prop firm is not a traditional broker that takes retail deposits. Instead, it uses its own or partner capital to fund trading accounts. Because of this model, most prop firms are not required to hold a full brokerage license. They often operate as private trading companies or technology providers that enter a service contract with traders.
Legitimacy rests on several practical factors. A firm must meet basic legal and tax obligations in the country where it is registered. It needs to comply with anti-money-laundering (AML) and know-your-customer (KYC) checks. It also has to pay traders as promised and maintain transparent risk rules. When those conditions are met and payouts are consistent, I consider the operation legitimate even if it does not have the same license as a retail broker.
There are, however, real risks. Some firms mismanage capital or rely almost entirely on evaluation fees without a sustainable profit engine. Others may face action from regulators if they advertise services that cross into brokerage activity without approval. The recent pressure from MetaQuotes on MT4 and MT5 access showed how platform providers can also disrupt the business. These events do not mean every prop firm is unsafe, but they show why I always check how a company structures its trading and technology agreements.
4.2 How to Assess Reliability
Before I trade with a prop firm, I run a simple but thorough check. I start with public records. A solid firm lists a real company name, registration number, and office address. I verify that data in official business registries. I look at the payout record next. If traders report slow or missing payments, I treat that as a warning. Fast and regular payouts over months or years signal that the company’s cash flow and risk control are in good shape.
I also review the legal agreement. It should clearly state profit-split terms, drawdown rules, and grounds for account termination. Vague or one-sided language is a red flag. I check platform access as well. Reliable firms work with established providers and have backup plans if a vendor cuts service. Stable technology reduces disputes about fills and slippage.
Finally, I consider regulatory alignment. Even when a prop firm is not a licensed broker, it should follow AML and KYC procedures and cooperate with financial authorities if needed. Some firms also maintain partnerships with regulated brokers to route trades, which adds another layer of oversight. By confirming these details and reading balanced reviews from active traders, I can separate firms built for long-term trading from those that rely on hype or short-term fee collection.
5. Working With Prop Firms as a Trader
5.1 Getting Started
Joining a prop firm begins with choosing the funding route and account size that fit my style. Some firms ask me to pass a challenge with profit targets and drawdown limits. Others offer instant funding for a higher fee but require proof of consistent trading later. I look for clear rulebooks that explain daily loss caps, payout cycles, and any limits on news trading or weekend positions. A well-written contract helps me plan trades and avoids confusion when it is time to withdraw profits.
Geography can also shape the choice. Certain firms accept U.S. clients, while others focus on Europe, Asia, or the Middle East. Some block entire regions to meet local regulations or avoid tax complications. I check these details before signing up so I know I will be able to trade and receive payouts without hidden delays.
5.2 Prop Firms Demo Accounts
Many reputable prop firms provide free or low-cost demo accounts. I see these as a smart way to test the waters before committing capital. A demo account lets me experience the firm’s trading platform, order execution, and risk management tools in real time without risking money. It is the ideal space to check how spreads behave during high-volume sessions, how fast the platform processes orders, and how stable the connection is under stress.
I also use demo trading to review reporting dashboards and payout request forms. This helps me decide if the firm’s workflow matches my daily routine. In my view, a company that invests in a strong demo setup is more likely to run a professional live operation. For a new trader, it is the safest first step to confirm that the firm’s environment fits personal strategies and expectations.
5.3 Trading Rules and Risk Management
Every prop firm enforces rules that keep their capital safe. Daily loss limits and overall drawdown thresholds are standard. Many require consistent lot sizes or a steady equity curve to prove discipline. If I break a rule, the account can pause or reset, so I build a plan that respects these limits from day one.
Strategy approval matters as well. Some firms welcome scalping or automated trading with expert advisors (EAs), while others block high-frequency methods or news scalps. Copy trading across multiple prop firms is possible when it is clearly allowed, but it must be set up to avoid detection as simple account mirroring. Understanding these details prevents disputes and protects my funded status.
5.4 Payouts and Profit Splits
The payout process is a key test of any prop firm. I check how and when they pay, what share of profits I keep, and whether they support my preferred withdrawal methods. Top firms now offer flexible schedules, from monthly cycles to on-demand payments within hours. The typical split ranges from 80/20 to 90/10 in favor of the trader. I also watch for any hidden fees or balance resets that could reduce my actual take-home income.
Strong firms back these promises with a clear record of completed payouts. They may require a final identity check before the first withdrawal. After that, the process should stay smooth. This consistency shows the company is well capitalized and has reliable banking or payment partners.
5.5 Trading Platforms and Tools
The choice of platform shapes how I trade. MetaTrader 4 and 5 remain popular for their expert advisor support and wide broker network. cTrader offers detailed depth of market and fast order routing. TradingView provides clean charting and built-in alerts. TradeLocker and Tradovate serve traders who want lightweight access or futures-specific tools. I look at latency, slippage policies, and server uptime to be sure my strategy can run without surprise delays.
Many prop firms give me a chance to switch platforms or connect external tools through APIs. I use that flexibility to test different setups during my demo phase so that live trading starts with confidence in the tech stack.
MetaTrader 4 (MT4)
MT4 is a long-time standard for forex and CFD trading. I like its familiar layout and the huge library of indicators and expert advisors. Many prop firms support MT4 because traders can code or buy automated strategies and copy trading scripts. Execution is generally fast and brokers provide deep liquidity. The platform works well for manual scalping and for running custom robots with minimal setup.
MetaTrader 5 (MT5)
MT5 builds on MT4 with more order types, better charting, and a true multi-asset engine. It allows trading in forex, indices, stocks, and futures from a single account. I use MT5 when I want more advanced timeframes and built-in economic data. Many prop firms now offer MT5 for its speed and improved back-testing, although recent MetaQuotes restrictions mean each firm must keep its license updated to avoid service breaks.
cTrader
cTrader is known for clean design and precise order handling. Depth of market is native, which helps when I place larger orders or scalp tight spreads. The cAlgo module supports C# programming for automated strategies. Many forex and index prop firms choose cTrader for low latency and detailed analytics. I find it especially useful when I need quick market depth checks before sending a limit order.
TradingView
TradingView started as a charting and social network, but many brokers and prop firms now link live trading directly into it. I can trade while sharing or reviewing ideas with other traders. The scripting language Pine Script lets me create lightweight alerts and strategies. It is a good fit when I value visual analysis and community signals as part of my daily plan.
TradeLocker
TradeLocker is a newer web-based platform that focuses on speed and simplicity. It loads quickly on any device and needs little installation. Prop firms use it to give funded traders a fast way to monitor and adjust positions with minimal setup. I test execution quality on TradeLocker demo accounts to be sure it can handle bursts of volatility before I rely on it for live trades.
6. Advanced Topics
Once I have steady results with a single prop account, I often look at more advanced ways to grow. One option is running several funded accounts at the same time. I can split risk across firms and strategies, which reduces the chance that one rule breach wipes out all capital. To make this work, I need clear records of each firm’s payout schedule and risk rules. I also keep trade sizes balanced to avoid triggering consistency checks or copy-trade flags.
Copy trading between prop accounts can help scale faster. Some firms allow trade copiers or external trade management tools. I set up different execution speeds or small timing offsets so that each account shows unique activity. This protects me from accusations of pure mirroring. It also spreads execution risk when market spreads widen during big news or sudden moves.
Scaling plans are another growth tool. When I reach a target profit with low drawdown, many firms will increase my funded amount. Some start at fifty thousand dollars and move to one million or more over time. I stay focused on steady percentage returns rather than big single trades. That pace matches how most firms calculate eligibility for larger accounts.
Advanced strategy work can also include specific market tactics. For example, I might scalp Nasdaq futures with tight stops and quick exits, hedge indices during major events, or run algorithmic models across multiple sessions. Each tactic requires a platform that can handle precise order flow and low latency. Before going live, I test these ideas on demo or small funded accounts to be sure they meet each firm’s drawdown and consistency rules.
Finally, I pay attention to trader development support. Some prop firms run training programs, one-on-one coaching, or offer private channels for funded traders. These resources can speed up learning, but I always confirm that they focus on practical trading improvements and not on upselling extra services. Used well, advanced tools and scaling policies can help me build a professional trading career inside the prop firm model.
7. The Future of Prop Firms
The prop trading industry is changing fast. Platform policy shifts, such as MetaQuotes tightening access to MT4 and MT5, already force many firms to adjust technology and licensing. Some move to cTrader, TradeLocker, or in-house systems to avoid dependence on one vendor. I expect more firms to adopt multi-platform setups so that traders are not locked into a single solution.
Regulation is another key factor. Authorities in the United States, Europe, and Asia are watching prop firms more closely. Even though these companies do not usually hold client deposits, they still face anti-money-laundering and tax reporting requirements. Firms that maintain strict KYC checks and transparent payout records will find it easier to keep banking partners and payment providers. Others may lose access to key services or even close if they cannot meet new standards.
Funding models are also evolving. Direct funding and instant funding plans are growing as traders look for faster access to live capital. At the same time, risk controls will tighten. I expect more automated monitoring of trade patterns, copy trading, and news event activity. Artificial intelligence tools can help firms spot unusual behavior quickly and keep loss ratios low without slowing down honest traders.
Competition will stay strong. Well-run companies will offer higher profit splits, lower fees, and faster payouts to keep experienced traders. Some may introduce subscription plans with free or discounted evaluations to build loyalty. Others will focus on niche markets such as futures, options, or specific regional currencies where they can add value beyond standard forex funding.
For traders like me, the trend means more choice but also more due diligence. I expect the next few years to reward firms that combine clean regulation, reliable technology, and fair profit sharing. Those that fail to adapt may vanish quickly. Staying informed and testing new platforms on demo before moving significant capital will remain the best way to trade confidently as the prop firm landscape continues to mature.
8. Choosing the Best Prop Firm
Finding a prop firm that fits my trading style starts with clear goals. I decide how much capital I want to manage, what markets I plan to trade, and how I prefer to work day to day. Some firms focus on forex and indices, others on futures or stocks. Matching my preferred instruments to the firm’s core business makes every next step smoother. To make the search even easier, we have collected the best prop firm offers on our website, sorted them by key criteria, and described their challenges in detail. You can quickly find the most suitable option by visiting https://www.myfxbook.com/prop-firms.
- Preferred markets: forex, indices, futures, stocks, or multi-asset
- Desired capital size and scaling path
- Daily trading routine and available time for active management
- Regional focus: firms accepting traders from my country or region
The next point is the funding model. I look at challenge fees, profit targets, and drawdown rules to see if they are fair. Instant funding sounds attractive but can come with tighter risk checks or higher costs. A balanced evaluation that allows reasonable losses while rewarding steady returns is a good sign of a sustainable business. I also check scaling options if I plan to grow from a smaller account to larger capital over time.
- Challenge or instant funding type
- Evaluation fees and refund policy
- Profit targets and maximum drawdown limits
- Scaling rules and account growth potential
Payout history matters more than marketing promises. I look for firms with a strong record of paying traders quickly and in full. Consistency over many months tells me the company is well capitalized and has solid banking relationships. I also read real reviews and talk with other funded traders when possible to confirm that payouts match the terms in the contract.
- Regular and timely payouts over a long period
- Transparent profit split percentages (e.g., 80/20 or 90/10)
- Multiple withdrawal methods and reasonable processing times
- Reputation from active funded traders and independent reviews
Trading technology can make or break my strategy. A firm should offer stable, low-latency access to the platforms I trust—whether that is MT4, MT5, cTrader, TradingView, TradeLocker, or Tradovate. I test these during a demo phase to check execution speed, spread stability, and support for any expert advisors or copy-trading tools I use. Good technical support and backup servers are key for smooth live trading.
- Available trading platforms and their stability
- Server latency and uptime during peak market hours
- Support for automated trading, expert advisors, or copy trading
- Availability of demo accounts to test execution and tools
Regulation and compliance are another layer of safety. Even if a prop firm does not hold a broker license, I prefer companies that register a real business entity, follow KYC and AML procedures, and work with regulated broker partners when possible. This lowers the risk of sudden shutdowns or frozen payments and shows that the management understands legal responsibilities.
- Official company registration and legal status
- Clear KYC and AML verification steps
- Partnership with regulated brokers or liquidity providers
- Transparent legal agreement covering risk and payout terms
Finally, I weigh the overall cost against value. Transparent fees, clear contracts, and responsive support all point to a professional operation. When a firm offers fair profit splits, strong tech, and a clean reputation, I know it can be a stable partner for long-term trading. By taking time to check each of these factors before funding an account, I protect my capital and set myself up for steady growth with the right prop firm.
- Total cost of participation, including hidden fees
- Quality and speed of customer support
- Clarity of contracts and payout policies
- Overall market reputation and longevity of the firm
9. Conclusion
Prop trading firms give traders a way to access large capital without risking personal savings. In this guide I explained how these firms operate, how they earn revenue, and how traders can profit by following clear risk rules. I also showed the importance of strong technology, transparent payouts, and solid compliance. These are the elements that make a prop firm dependable and worth a long-term partnership.
Key Takeaways
After years of trading and working with multiple prop firms, I keep these points in mind:
- A prop firm is a private trading company, not a traditional broker, and usually earns from challenge fees and a share of trader profits.
- Consistent payouts, stable trading platforms, and strong KYC/AML compliance are signs of a healthy operation.
- Clear rules on drawdown, leverage, and allowed strategies protect both the firm and the trader’s funded status.
- Reliable technology and fast order execution are as important as the funding amount itself.
Checklist for Selecting a Reliable Prop Firm
Before I fund an account I walk through a simple checklist. This process saves time and lowers risk. To speed things up you can also explore our curated prop firm listings. We gathered the best offers, sorted them by key criteria, and explained each challenge so you can quickly find a match.
- Confirm company registration, legal entity, and basic financial compliance.
- Review funding model: challenge fees, profit targets, drawdown limits, and scaling plans.
- Verify payout record, including frequency, processing speed, and profit split terms.
- Check supported trading platforms and test execution on a demo account.
- Read the full trader agreement to understand risk policies and account termination rules.
Final Advice on Risk Management and Career Growth
I treat prop trading as a professional business. I keep a strict risk plan for every account and never exceed the drawdown levels allowed by the firm. I size positions so that a single loss does not end my funded status. I also use multiple firms or scaling programs to spread exposure and keep my growth steady.
Good record keeping and ongoing education help me stay profitable. I track each trade, review monthly performance, and adjust my approach as markets change. By combining these habits with careful firm selection—using tools like the Myfxbook prop firm page—I build a sustainable trading career backed by external capital instead of personal savings.
FAQ
What is a prop trading firm?
A prop trading firm is a private company that funds traders with its own capital. Traders open and manage positions under firm rules and share profits. The firm earns from evaluation fees and a share of the trader’s gains instead of collecting deposits like a retail broker.
How do prop firms make money?
They collect challenge or evaluation fees, keep a percentage of profitable trades, and may receive rebates or commissions through broker or liquidity partnerships. Strong risk management allows them to protect capital and keep these revenue streams stable.
Are prop trading firms regulated?
Most prop firms are not brokers and do not need a brokerage license or a financial regulator. They still follow KYC and AML checks and often partner with regulated brokers for order execution. I always check company registration, payout records, and the legal contract to confirm reliability.
How do traders get paid?
After reaching the profit target and meeting risk rules, traders request a payout through the firm’s dashboard. Payouts can be weekly, monthly, or on demand. Common methods include bank transfer, crypto, or e-wallets. Top firms process withdrawals within one to three business days, sometimes faster.
Do prop firms offer demo accounts?
Many firms provide demo accounts so I can test the platform, order execution, and reporting tools before paying for a challenge or funding an account. A good demo helps check spreads, slippage, and platform stability under live market conditions.
Which trading platforms do prop firms support?
The most common platforms are MetaTrader 4 and 5, cTrader, TradingView, TradeLocker, and Tradovate. Each has different strengths. MT4 and MT5 are popular for automated trading and expert advisors. cTrader offers precise order control and depth of market. TradingView is strong in charting and social ideas. TradeLocker and Tradovate are often used for lightweight forex and futures trading.
Can traders use bots or expert advisors?
Many prop firms allow automated trading, but rules vary. I always read the agreement to confirm whether expert advisors, high-frequency trading, or grid strategies are permitted. Some firms limit copy trading or require unique trade patterns to avoid pure mirroring of accounts.
What are consistency or 2% rules?
Consistency rules make sure profits are built over multiple trades rather than a single lucky trade. The 2% rule is a common daily loss limit, meaning I cannot lose more than two percent of the account size in a day. These controls keep both the trader and firm safe from sharp drawdowns.
What about spreads and trading costs?
Spreads are the difference between the buy and sell price of a pair or instrument. Tight spreads lower trading costs, which is critical if I scalp or trade frequently. Wide spreads mean I pay more on every trade and may see profits shrink. To compare spreads across firms, I use the dedicated Prop Firms Spreads page on Myfxbook. It shows live and average spreads for major pairs such as EUR/USD, GBP/USD, and USD/JPY. This data comes from real trading conditions and lets me see which firms keep spreads consistently low. I also check whether commissions or swap fees are added on top of the spread. By reviewing both live and typical spreads, I can choose a firm where my total trading cost stays predictable and competitive for my style.
How do I choose the best prop firm?
I look at funding models, payout history, supported platforms, risk rules, and reputation. To save time I use the Myfxbook prop firm page, where top offers are sorted by criteria and each challenge is described in detail. That makes it easy to find a trusted partner for long-term trading.
What happens if I break a rule or lose money?
If I breach drawdown or trading rules, the account may be paused or closed. Losses on funded accounts are absorbed by the firm, but I forfeit my funded status. Careful risk management and respect for the rulebook are key to keeping an account active.
What is “proprietary trading” in the institutional sense?
It is a financial institution trading with its own capital for its own profit. The desk is separate from client teams and runs under dedicated limits. Positions may be directional or market-neutral and often use derivatives for precise exposure.
How is an institutional prop desk different from a retail prop firm?
A retail prop firm funds external traders and pays a profit split. An institutional prop desk trades in-house and keeps all gains. Retail props focus on evaluation programs and payouts. Institutional desks focus on firm P&L, inventory, and sometimes market making.
Which strategies do institutional prop desks use?
I often see index or statistical arbitrage, merger arbitrage, volatility trading with options, global macro in rates and FX, and classic fundamental or technical plays. The mix depends on the team and the risk budget.
Why do big firms maintain information walls?
To prevent conflicts. The prop unit must not use client order flow or confidential data. Firms keep the desk ring-fenced, with separate risk oversight and reporting.
Can banks engage in prop trading?
Large U.S. banks face limits under the Volcker Rule. The goal is to reduce short-term speculative risk inside systemically important banks. Brokerages and hedge funds that are not covered by Volcker have more room but still answer to risk and compliance.
Who is the employer in each model?
On an institutional desk the trader is usually an employee. In retail prop firms, I am more often a contracted trader under a service agreement with a profit split and a rulebook.
How are risks measured on institutional desks?
Management sets limits by product and strategy. Desks track exposure with metrics like VaR, stress tests, and concentration caps. Break a limit, and the risk system cuts size or flattens positions.
Do institutional prop desks act as market makers?
Sometimes. A desk can hold inventory and quote prices, which helps clients trade size in quiet or illiquid names. That role also supports the firm’s own execution when liquidity is thin.
Is copy trading allowed in institutional prop trading?
No. Institutional desks run firm capital and internal strategies. In retail prop firms, copy trading may be allowed under rules that require unique execution and proper setup.
How are taxes handled?
Institutional traders are employees and follow local payroll and bonus rules. In retail prop firms, I handle my own tax reporting as defined by my country. I keep records of payouts and fees for my accountant.
What should I check to avoid surprises?
I read the agreement line by line, test execution on a demo, confirm payout speed, and review spread data on the spreads page. I also check whether news trading, EAs, or weekend positions are allowed and how breaches are handled.
