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BlogThe Complete Guide to Proprietary Trading
Proprietary trading (prop trading) is when a firm uses its own capital to trade financial markets, sharing profits with skilled traders. This guide covers everything from how to get started and pass prop firm challenges, to understanding fees, taxes, and regulations.
What Is Proprietary Trading?
Proprietary trading is when a financial firm provides its capital to traders who have demonstrated their skills through an evaluation. Unlike traditional investing where you use your own money, prop trading lets you access funded capital from $5,000 to $400,000 and share in the profits you generate.
The modern prop trading industry has grown significantly, with firms like FTMO paying out over $160 million to traders worldwide. Today, anyone with an internet connection and trading skills can apply for a funded account.
Pros and Cons of Prop Trading
Advantages
- Access to significant trading capital without personal risk
- Keep 80%–100% of profits you generate
- Low capital requirements to start (as low as $25)
- Access to advanced trading tools and platforms
- Trade remotely from anywhere in the world
- Opportunity to develop professional trading skills
- Exposure to multiple financial markets
- Flexibility to adjust strategies based on market conditions
Disadvantages
- Risk of losing evaluation fees if you fail challenges
- Intense pressure and psychological stress to perform
- Strict rules around drawdown and risk management
- Challenge pass rates are typically 10%–20%
- Constant need to stay updated with market developments
- Some firms have complex or restrictive trading rules
- Risk of overtrading and excessive risk-taking
- Extended screen time can become exhausting
How to Start Prop Trading
- Choose a Prop Trading Firm — Research firms based on your preferred markets (futures vs. forex), profit splits, challenge fees, and platform support. Start with our comparison of the best firms.
- Select an Account Size — Choose based on your budget and experience. Start smaller ($10K–$25K) if you are new to prop trading, and scale up as your skills improve.
- Purchase an Evaluation — Pay the one-time or monthly fee to begin the challenge. Watch for promo codes that can save up to 80% off.
- Pass the Challenge — Hit the profit target while staying within the maximum drawdown and daily drawdown limits. Follow all trading rules carefully.
- Get Funded — After passing, receive access to a funded live trading account with the firm's capital.
- Earn and Withdraw Profits — Trade consistently, generate profits, and request withdrawals based on the firm's payout schedule.
Is Prop Trading Legal?
Yes, prop trading is legal in most countries worldwide. Prop firms operate as service providers offering evaluation programs and funded accounts. While they are not regulated like traditional brokers, reputable firms operate transparently with clear rules, verified payouts, and positive industry reputations.
However, regulations vary by country. Traders should check their local laws and tax obligations before participating in prop trading programs.
Costs and Fees
Prop trading costs include evaluation fees (ranging from $25 to $1,800+ depending on account size), potential monthly subscriptions, and platform/data fees. Many firms refund the challenge fee with your first profit split, and promo codes can significantly reduce initial costs.
Taxes on Prop Trading
Prop trading profits are generally taxable income. Since you are classified as an independent contractor (not an employee), you are responsible for reporting and paying taxes on your prop trading earnings. Consult a tax professional in your jurisdiction for specific guidance on how prop trading income should be reported.
Recommended Prop Trading Firms
| # | Firm | Profit Split | Max Account | Starting From | Markets | Rating | Visit |
|---|---|---|---|---|---|---|---|
| 1 | Apex Trader Funding | 100% first $25K, then 90% | $300,000 | $147/mo | Futures | 9.2/10 | Visit |
| 2 | FTMO | 80%–90% | $200,000 | €155 | Forex, Indices, Commodities | 9/10 | Visit |
| 3 | Instant Funding | 80%–90% | $200,000 | $75 | Forex, Indices, Commodities | 8.8/10 | Visit |
| 4 | The Trading Pit | 50%–80% | $250,000 | $99 | Forex, Futures, Indices | 8.7/10 | Visit |
| 5 | TopStep | 100% first $10K, then 90% | $150,000 | $49/mo | Futures | 8.6/10 | Visit |
| 6 | SabioTrade | 80%–90% | $200,000 | $119 | Forex, Indices, Commodities | 8.5/10 | Visit |
| 7 | Earn2Trade | 80% | $400,000 | $150/mo | Futures | 8.5/10 | Visit |
| 8 | UProfit | 80%–90% | $200,000 | $149/mo | Futures | 8.4/10 | Visit |
| 9 | FundedNext | 80%–95% | $200,000 | $59 | Forex, Indices, Commodities | 8.4/10 | Visit |
| 10 | The5%ers | 80%–100% | $250,000 | $39 | Forex, Indices, Commodities | 8.4/10 | Visit |
| 11 | Leeloo Trading | 80%–90% | $300,000 | $150/mo | Futures | 8.3/10 | Visit |
| 12 | Blueberry Funded | 80%–85% | $200,000 | $97 | Forex, Indices, Commodities | 8.3/10 | Visit |
| 13 | Alpha Futures | 80% | $150,000 | $129/mo | Futures | 8.3/10 | Visit |
| 14 | E8 Markets | 80% | $250,000 | $228 | Forex, Indices, Commodities | 8.2/10 | Visit |
| 15 | Funding Pips | 80%–90% | $100,000 | $36 | Forex, Indices, Commodities | 8.2/10 | Visit |
| 16 | FXIFY | 80%–90% | $400,000 | $59 | Forex, Indices, Commodities | 8.2/10 | Visit |
| 17 | Maven Trading | 80% | $100,000 | $25 | Forex, Stocks, Indices | 8.1/10 | Visit |
| 18 | Goat Funded Trader | 75%–95% | $400,000 | $36 | Forex, Indices, Commodities | 8.1/10 | Visit |
| 19 | The Funded Trader | 80%–90% | $400,000 | $49 | Forex, Stocks, Indices | 8/10 | Visit |
| 20 | My Funded Futures | 80%–90% | $150,000 | $150/mo | Futures | 8/10 | Visit |
| 21 | FunderPro | 80%–90% | $200,000 | $59 | Forex, Stocks, Indices | 7.9/10 | Visit |