Frequently asked questions about Prop Firms

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Prop Firm FAQs

What is a Prop Firm?

A proprietary trading firm, commonly called a "Prop Firm", is a company that provides traders with access to company-funded trading capital. Instead of trading only their own money, successful traders can trade larger funded accounts and typically earn a percentage of the profits while following the firm's trading rules.

What is a Funded Trading Account?

A funded trading account is an account provided by a prop firm after a trader successfully completes the firm's evaluation process. The trader uses the firm's capital to trade financial markets and shares a portion of the profits according to the firm's payout agreement.

What is a Trading Challenge?

A trading challenge is an evaluation process used by prop firms to assess a trader's skills before providing a funded account. Traders are usually required to achieve a specified profit target while following rules such as maximum drawdown limits, daily loss limits, and consistency requirements.

What is a Daily Drawdown?

Daily drawdown is the maximum amount a trader is allowed to lose during a single trading day. Many prop firms enforce daily drawdown limits to encourage disciplined risk management. Exceeding the daily drawdown limit may result in failing the trading challenge or losing access to the funded account.

What is a Maximum Drawdown?

Maximum drawdown is the largest overall decline allowed on a trading account before the account is considered to have failed. Unlike daily drawdown, maximum drawdown measures losses over the entire life of the account. Staying within this limit is one of the most important requirements when trading with a prop firm.

What is a Profit Target?

A profit target is the amount of profit a trader must achieve to successfully complete a trading challenge or reach a specific milestone. For example, a prop firm may require traders to earn an 8% return while staying within all risk limits before qualifying for a funded account.

What is a Consistency Rule?

A consistency rule is a requirement used by some prop firms to ensure traders generate profits consistently rather than relying on one unusually large winning trade. The exact rules vary by firm, but they are generally designed to encourage steady, disciplined trading and proper risk management.

What is Account Scaling?

Account scaling is the process of increasing a trader's funded account size after demonstrating consistent profitability and responsible risk management. Many prop firms offer scaling programs that reward successful traders with access to larger trading capital and the opportunity to generate higher potential profits over time.