What Is a Prop Firm?
Key takeaway: A proprietary trading firm (prop firm) lets traders trade the firm's capital, usually after passing a paid evaluation. You pay a fee, prove you can hit a profit target without breaking strict loss limits, and if you pass you trade a funded account…
Key takeaway: A proprietary trading firm (prop firm) lets traders trade the firm's capital, usually after passing a paid evaluation. You pay a fee, prove you can hit a profit target without breaking strict loss limits, and if you pass you trade a funded account and receive a share of the profits under the firm's terms. The rules, not the strategy, are what end most attempts.
What a prop firm is
Traditionally, a proprietary trading firm was a company that traded its own money with in-house traders. The model most retail traders mean today is different: an online firm that sells evaluations (often called challenges). If you pass, you get access to a funded account and a share of the profits you make on it.
For someone with a strategy but little capital, the appeal is clear. Instead of growing a small personal account for years, you pay a fee and, if you trade well inside the rules, you trade a much larger account. The catch is that the rules are strict, and most people who start an evaluation do not finish it.
To be clear about our position: RisePips is a mentorship, not a prop firm. We do not fund accounts. Our programs include coaching for traders who choose to take prop firm evaluations.
How the typical model works
Every firm has its own terms, but the general shape is similar:
- Choose an account size and pay a fee. Bigger accounts cost more.
- Evaluation phase. Reach a profit target, stay within a daily loss limit and a maximum overall loss, and follow any other rules (minimum trading days, news restrictions, maximum position size and so on).
- Verification phase. Many firms add a second phase with a lower target and the same limits. Some have one phase; some have more.
- Funded account. You trade the firm's account. Loss limits still apply, and breaking one usually ends the account.
- Payouts. You request a share of the profits on the firm's schedule and split.
We cover the phases in more detail in how prop firm challenges work, and the most important rule of all in prop firm drawdown explained.
What a "funded account" actually is
Read each firm's terms carefully, because "funded" can mean different things. In many current models the funded account is a simulated or demo-style account, and payouts are made from the firm's own revenue under its terms, rather than you directly trading the firm's money in the market. That is not necessarily a problem, but it means the firm's rules and reliability matter as much as your trading. Look for clear written terms, a payout history you can verify, and rules you understand fully before you buy.
Why NAS100 traders use prop firms
- Leverage on skill, not savings. A trader who risks a small share per trade on a larger account makes more in money terms than on a small personal account.
- Defined risk. The most you can lose on an evaluation is the fee, which some traders find easier to manage than depositing their own capital.
- Structure. Hard limits force discipline that many traders struggle to impose on themselves.
NAS100 is a popular instrument for evaluations because it moves enough to reach targets, but the same speed makes loss limits easy to hit. Our guide to passing a prop firm challenge trading NAS100 covers how to size for that volatility.
What usually ends an evaluation
- Risking too much per trade to reach the target faster. Two or three losses then breach the daily limit.
- Not understanding the drawdown type. A trailing limit behaves very differently from a static one.
- Trading through news when the firm restricts it, or when spreads widen and stops slip.
- Time pressure. Forcing trades near a deadline. Where firms have time limits, they are designed to tempt exactly that.
- Revenge trading after a loss. See our trading psychology guide.
Questions to ask before you buy any evaluation
- What exactly are the daily and maximum loss limits, and are they static or trailing? Based on balance or equity?
- Is there a time limit, a minimum number of trading days, or a consistency rule?
- Are there restrictions on news trading, holding over the weekend or position size?
- Which instruments and which NAS100 contract do they offer, and what is it worth per point?
- How and how often are payouts made, and what is the split?
- Where are the full terms written, and can they change after you buy?
Because these details differ between firms and change over time, always read the current terms on the firm's own website. Do not rely on a summary, including this one.
Risk considerations
An evaluation fee is money you can lose, and many traders pay several before passing, if they pass at all. Treat the fee as a cost of trading, not an investment. Prepare on a demo account with the same limits first, and size every trade so that a normal losing streak cannot breach the daily limit. The position size calculator helps you set that size precisely.
