Looking for a prop firm to trade with? Here’s what you need to know upfront:
- Profit Sharing: Firms offer splits up to 100% (challenge-based) or 50–80% (instant funding).
- Costs: Expect evaluation fees starting around $46 for $6K accounts, scaling up to $413 for $100K accounts.
- Account Sizes: Options range from $5,000 to $200,000.
- Rules: Watch for profit targets, drawdown limits, and trading restrictions (e.g., no news or overnight trading).
- Tools: Most firms provide platforms like MT4/MT5, TradingView, and risk management systems.
Red Flags to Avoid:
- Hidden fees or unclear terms.
- Poor reputation or payout issues.
- Unrealistic trading conditions.
Key Tip: Choose a firm that aligns with your trading style - scalping, swing trading, or news trading - and risk tolerance.
Top 5 Criteria to Choose the Right Prop Firm and Avoid Pay ...
What is Prop Trading?
Prop trading involves traders using a firm's capital to make trades, sharing both the risks and rewards with the firm.
How Prop Firms Operate
Prop firms provide traders with access to substantial capital, often offering profit shares as high as 90%. They also supply exclusive trading tools, advanced platforms, and up-to-date market data.
These firms make money through:
- Trading profits generated from market activities
- Subscription or membership fees paid by traders
The profit-sharing models are structured to reward performance, giving traders a clear incentive to succeed. This setup helps you evaluate how a firm's approach aligns with your trading style.
Trading Challenges Explained
Most prop firms use challenge-based evaluations to identify skilled traders before granting them access to real capital. These challenges typically fall into two categories:
| Challenge Type | Key Features | Typical Profit Split |
|---|---|---|
| Standard Challenge | Involves an upfront fee, trading on a demo account, and meeting profit targets | Up to 100% |
| Instant Funding | Offers direct access to capital without a challenge but enforces stricter risk controls | 50–80% |
During these evaluations, traders must prove they can generate consistent profits while following strict risk management rules. As noted by YourPropFirm:
"Prop firms are dedicated to generating profits through various trading activities, including but not limited to high-frequency trading, day trading, and swing trading." – YourPropFirm
To succeed in these challenges, traders need disciplined risk management and must hit specific profit targets. Many firms also offer mentorship and training resources to help traders improve their strategies. Understanding these systems and structures will help you assess which firm is the best fit for your goals.
5 Main Selection Criteria
Choosing the right prop firm can have a big impact on your trading success. Below are the key factors to consider when making your decision.
Cost Structure
The fees you pay - both upfront and ongoing - can directly affect your profits. Most prop firms charge evaluation fees based on the account size you select. For example, For Traders offers evaluation plans starting at $46 for a $6K virtual capital account, with options scaling up to $413 for a $100K virtual capital account.
Key fee components to watch for include:
- Initial evaluation fees
- Monthly subscription fees (if applicable)
Also, take a close look at how profit-sharing aligns with your financial goals.
Profit Distribution
Profit splits vary depending on the funding model. Challenge-based models may offer up to 100% profit splits, while instant funding options typically range between 50% and 80%. Make sure the profit-sharing terms fit your trading style and expectations.
Account Sizes
For Traders offers a range of account sizes to suit different trading needs:
- Entry-level accounts: $6K
- Mid-tier options: $15K and $25K
- Professional accounts: $50K
- Advanced accounts: Up to $100K
Pick an account size that matches your experience and trading goals.
Trading Software
Most modern prop firms provide access to industry-standard tools and platforms, including:
- MT4 and MT5 platforms
- Advanced charting tools like TradingView
- Proprietary platforms with built-in analytics
- Real-time market data feeds
- Risk management tools
Having the right software can make a big difference in your trading efficiency and decision-making.
Challenge Rules
Each firm has its own evaluation criteria. For Traders, for instance, requires traders to hit a 9% profit target while maintaining a 5% maximum drawdown. These rules are designed to balance challenge with achievability, so ensure they align with your risk tolerance and trading strategy.
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Warning Signs to Watch
Spot potential issues with prop firms before committing your time and money.
Reputation Check
Do your homework. Over 50 prop firms have shut down in recent years.
Be cautious of:
- Negative reviews about withdrawal issues or account access
- Lack of regulatory registration or compliance
- Poor operating history or inconsistent payout records
Here’s an example:
"Yesterday I found out that the prop trading firm that I had been using to do a funding challenge had 'temporarily paused all operations.'"
– Kabilan Thavabalalingam, Self Employed Options and Equities Trader
Fee Transparency
Make sure fee structures are clear. Red flags include:
- Hidden trading fees beyond evaluation costs
- Ambiguous profit-sharing terms
- Surprise subscription charges
Reputable firms will provide a clear breakdown of all fees, from evaluation costs to ongoing charges.
Unreasonable Requirements
Steer clear of firms with impractical trading conditions. Be wary of those that operate only in virtual environments without transitioning traders to live accounts.
Choose firms that use actual capital and route trades through trustworthy brokers. These insights can help you align a firm's offerings with your trading strategy.
Matching Your Trading Method
Trading Style Compatibility
It's important to align your trading style with the specific rules of each firm. Here are some examples:
-
Scalpers: Timing restrictions are common. For instance:
- Alpha Capital requires trades to last at least 2 minutes.
- Blueberry Funded considers it "excessive scalping" if over 50% of trades are held for less than 1 minute.
- E8 Markets limits trades under 1 minute to no more than 50% of total trades.
-
News Traders: Be aware of restrictions around major economic events. For example:
- FundingPips restricts trades opened within 5 hours of high-impact news but allows profits if closed within the permitted timeframe.
- Many firms impose limits on trading during key economic releases.
-
Swing Traders: Position holding limits vary. For example:
- FTMO doesn’t allow weekend positions on standard funded accounts (non-swing accounts).
- Other firms may permit longer holding periods.
Once you’ve considered these style-specific rules, it’s time to evaluate risk guidelines to ensure they work with your trading approach.
Risk Rules and Limits
Risk management rules play a big role in shaping your trading strategy. Pay attention to these key areas:
- Stop-Loss Requirements: Some firms, like The 5%ers Bootcamp, require stop-loss orders on every trade, limiting risk to 2% of your account balance per trade. Others mandate setting stops within 60 seconds of entering a position.
- Position and Drawdown Limits: These are some common risk parameters to consider:
| Risk Parameter | Typical Limits | Impact on Trading |
|---|---|---|
| Daily Loss Limit | 3–5% of account | Triggers a daily trading stop |
| Per Trade Risk | 1.5–2.5% | Affects position sizing |
| Drawdown Threshold | 5–10% total | Could pause or terminate account |
Many firms also require consistent trading activity to maintain funded status. They may enforce leverage limits and prohibit risky practices like martingale strategies.
Next Steps
Here’s how to choose and apply to a prop firm, step by step. This process will take you from planning your strategy to submitting your application:
- Outline Your Trading Strategy
Clearly define your trading approach by detailing:
- Instruments and timeframes you prefer
- How you manage risk
- Typical trade durations
- Rules for position sizing
- Expected monthly returns
Make sure your strategy aligns with the firm's evaluation process.
- Confirm Platform Compatibility
Test your strategy on the platforms the firm supports. Common options include:
Most firms offer demo accounts, so you can test your setup before committing.
- Compare Offers
Once your strategy is ready, create a spreadsheet to evaluate firms. Include these key details:
| Feature | What to Record |
|---|---|
| Initial Cost | Fee for challenges or subscriptions |
| Profit Split | Percentage offered (usually 70–90%) |
| Scaling Plan | Options for account growth |
| Payout Schedule | Frequency (weekly, bi-weekly, monthly) |
| Support Hours | Availability of trading support |
- Research Reputation
Before applying, check these factors:
- Trustpilot ratings (look for 4.5 stars or higher)
- Feedback from active trading communities
- Recent performance trends
- Customer support response times
- Gather Required Documents
Prepare these essentials:
- Government-issued ID
- Proof of residence
- Tax details
- Payment method information
- Trading history (if needed)