Proprietary trading firms (“prop firms”) have exploded in popularity among aspiring traders, especially with remote work和the growth of online trading. Picking the best prop firm can help budding traders access large amounts of capital, professional risk systems, and mentorship—but, as I’ve found repeatedly, most people don’t even understand how these firms work, how they differ from ordinary brokerages, or what the catch might be. This article breaks down what prop firms are, how they operate in practice (yes, including the infamous “challenges” and profit sharing), how they compare country to country, and shares both real data and my own war stories from using these firms first-hand.
Let’s not overcomplicate: a prop trading firm is a company that trades its own money—or sometimes, a pooled fund—through individual traders. If you’re a trader at a prop firm, you aren’t trading your own money. You’re operating on the firm’s behalf, following its predefined risk rules. In exchange, you might get a cut of any profits you generate (industry averages: 70–90%, source: various prop firms, e.g., FTMO). Unlike a regular brokerage, which just facilitates your own self-directed trades, prop firms are betting their capital and giving you a target (think of it as “here’s $100k—prove you can handle it”).
There are two broad categories:
When I first heard about prop firms, I thought it sounded too good to be true: “Wait—you can trade with someone else’s money, and just split profits? What’s the catch?” Turns out, there are a few.
With traditional prop shops, you’d apply like any high-level finance job. Picture interviews, coding, maths exams, and maybe even mental arithmetic against the clock (I once failed on a question about variance… nightmare). You might start with a training salary, then graduate to a trading desk if you prove yourself. These are proper jobs, usually with health insurance, a team, an HR department sniffing around.
But for 99% of online prop traders? No interviews—just a “challenge” (sometimes called an evaluation). Example: FTMO wants you to trade their demo account, hit a specific return (say, 10%) in a month without breaching loss limits, risking only a set amount each day (sometimes as low as 2%). “But is this real money?” No—at this stage, it’s simulated. They’re watching you for discipline, not luck. Quick tip: my first time, I rushed, made 5% in three days, and immediately busted out by breaching the daily max loss. Had to pay for a restart. Pace yourself.
If you pass, you’re given a “funded” account—sometimes in demo, sometimes live, depending on firm and region (see below for country rules). You can now trade, sticking to the original risk settings (max loss, max position size, etc). You make $10,000, you split it with the firm—most prop shops pay out monthly via bank, PayPal, even crypto.
Skeptical? So was I—the industry isn’t always transparent about how much is simulated and how much is actually placed in the live market. Some brokers (e.g., US-based firms) are watched closely by regulators like SEC or FINRA (FINRA’s Prop Trading Guidance). Others offshore (e.g., Caribbean, Cyprus) might keep all the trading internal—meaning, it’s simulation forever, and your “profits” are more like a teaching reward.
Say you’re finally making money—the magic 80/20 split. Not so fast. Some prop shops take “performance fees,” others make you hit a certain threshold before paying out (and, yes, you might pay withdrawal fees or convert to crypto first). There’s loads of fine print around news trading, “copy trading,” and scalping—see an example from Earn2Trade here. I once thought I’d outsmart a daily loss rule by reducing my size at the last minute. The firm noticed, flagged my account, and I had to forfeit 30% of my earnings. Painful—so check the FAQs.
Here’s where people get confused. Brokerages (like Interactive Brokers, Robinhood, IG) let you trade clients’ money, at your risk, and make money through commissions or a spread. They don’t care if you win or lose (within legal limits—they have to check for fraud, of course).
Prop firms, by contrast, risk their own money. If you lose, it’s their problem—unless, of course, you breached a rule (then you’re out). If you win, you’re incentivised through sharing. Plus, you’re sometimes mentored (“risk coaching,” group chats—although in big global firms, this is much more selective).
And, if you mess up bad enough (say, go $10,000 past your loss limit overnight), you’re kicked off—the firm does not want “rogues.” Famous rogue trader examples like Nick Leeson at Barings Bank (see BBC analysis) are textbook reminders that prop risk is lethal.
If you’re anywhere outside the US, regulation gets messy fast. Some regions have strong oversight, others are pretty much the Wild West. Let’s look at a simple comparison.
| Country/Economic Area | Prop Firm Regulation | Main Legal Documents | Enforcement/Supervisory Org |
|---|---|---|---|
| USA | High (Registered Broker-Dealer) | Dodd-Frank, SEC Act, FINRA Rule 3230 | SEC, FINRA, CFTC |
| EU (ESMA) | Moderate (MiFID II scope dependent) | MiFID II, ESMA directives | ESMA, local FCA/AMF/BaFIN |
| UK | Moderate (FCA-registered if serving retail) | FCA handbooks, MiFID II (legacy) | FCA |
| Australia | Moderate | ASIC guidance | ASIC |
| Singapore | Strict (for physical prop shops) | MAS rules, SFA | MAS |
| Offshore (e.g., St Vincent & Grenadines) | Low | Company Law, local rules (weak) | N/A or local company registry |
A personal funny/not-funny story: I once tried to open a “funded trader” account at a Caribbean-based prop firm, lured by their zero-tax promise and loose rules, only to realize later that withdrawals were frozen for weeks. Turns out, the country had decided to “review” all financial service licenses that month (real regulatory bulletin). Needless to say, I never received my profit share. Lesson: check if the firm you’re eyeing is registered with a real regulator (SEC, FCA, ASIC, etc).
Let me show what happens with actual “verified trade” disputes, based on a simulated example inspired by WTO’s recent China-USA DS589 case.
Imagine Country A (USA) and Country B (China) both have prop firms exporting "trade services." A trader in A “verifies” their profit in a US-regulated challenge. Country B’s regulator has no such rules and doesn’t recognize A’s digital compliance records. When A’s trader wins and requests a profit payout from a cross-border B-based prop firm, B’s institution demands a "verified trade" certificate, but there’s no common legal standard! Dispute brews; payment stalls.
This is not theoretical—OECD guides and the WCO’s SAFE Framework both highlight that differences in trade "verification" can block finance and remittances.
Quoting David Taylor (real compliance consultant speaking at Transparency Task Force roundtable): “The industry right now is split between regulatory experimenters and outright risk takers. Until best practices are synchronised internationally, you’ll keep seeing disputes—and, for traders, the risk is always that your verification in one country won’t count elsewhere.”
I took the liberty of screenshotting my last FTMO challenge dashboard. (See image link: [link]). You see clearly the challenge stats: daily drawdown, max loss, profit target—plus a giant “failed!” banner after I forgot to close a position before market close (always read the time zone rules).
Most online prop firms have similar dashboards: live metrics, daily reset links, and a chat support button (which sometimes is manned by a bot). If you do well, you’ll get a contract via PDF, sign, send ID—again, always check the privacy policy. Some firms have had leaks, as documented by SecurityWeek analysis.
Having tried multiple prop firms—in the UK, US, and offshore—I’d say they are an incredible way to get real-world trading experience and, for skilled traders, a potential income stream. But they are not a magic bullet: most people fail the challenge (FTMO’s published pass rate is about 7%, see FTMO stats), and some prop firms have ambiguous regulation or slow payouts.
If you’re new, start with demo trading, practice the risk rules, and only apply to firms with a recognized license in your country. Don’t get carried away by social media “success stories” (many are affiliates). In fact, try joining trader forums like EliteTrader to read raw reviews—including some horror stories about rules, payouts, or platform bugs.
The best prop firm for you may depend less on their profit split, and more on their stability, payment record, and transparency. And, if you ever see a firm offering 100% payout, zero verification, and ambiguous legal address—run!
Next steps: If you’re ready, shortlist three prop firms you like, check their regulation (search their name on the SEC or FCA website), read every line of their risk rules, and—if in doubt—ask in trader forums. My DMs are open, and if you want a walk-through of a prop challenge in action (failures and all), just ask.