How to Get Into Prop Trading

What is Prop Trading?

Proprietary trading, aka prop trading, is an online trading practice where financial firms use their own capital to engage in trading activities across various markets.

These firms, known as proprietary trading firms or prop firms, employ skilled traders who execute trades with the firm’s funds, aiming to generate profits. This is different from traditional CFD trading, where you are using and risking your own money.

Prop firms operate more like independent trading entities, using their own capital to take advantage of market opportunities. Many start their traders with simulated or demo accounts as a proving ground before granting access to live-funded accounts.

This allows traders to build skills across various asset classes—such as forex, stocks, indices, commodities, and crypto—by focusing on price movement strategies without risking real capital initially.

Unlike brokerage firms that focus on executing trades for clients, prop firms provide traders with capital and tailored risk management tools within trading programs.

Prop Trading vs Traditional CFD Trading

The main difference between prop trading and traditional CFD trading is whose money you’re using. In prop trading, you trade with the firm’s funds and keep a share of profits, but follow their rules and risk limits.

With traditional CFD trading, you use your own money, so while you keep all profits, you’re also fully responsible for any losses. Prop trading often includes growth options, while CFD trading offers more flexibility without firm-set rules.

What Do Prop Traders Trade?

Prop traders can trade a range of financial markets and assets like forex, stocks, commodities, indices, and cryptocurrencies. While the available trading instruments depend on the prop firm you sign up with, most offer popular major forex pairs, key indices, and high-demand commodities.

• Forex pairs – Major currency pairs like EUR/USD, USD/JPY, and GBP/USD are typically offered, giving traders access to high-liquidity options.
• Commodities – Traders often find key commodities like gold, silver, and crude oil, which are ideal for those interested in hedging and high-demand assets.
• Indices – Many prop firms offer top indices like the S&P 500, NASDAQ, and FTSE 100, enabling traders to speculate on broad market movements.
• Shares – Some firms provide access to major stocks such as Apple, Microsoft, and Tesla, popular for their volatility and trading volume.
• Crypto – Cryptocurrencies like Bitcoin, Ethereum, and Litecoin are available at some firms, though the range can be more limited compared to other assets.

Although some prop firms also provide access to cryptocurrency and smaller stock markets, there’s only a few dominating this space. For more info on the best crypto prop firms, read our DNA Funded Review or Blueberry Funded Review.

Why Choose a Prop Trading Firm Over a Forex Broker?

Prop firms offer some key advantages over your standard forex brokers, with the most important being prop companies provide you with capital to trade instead of risking your own personal funds.

With a prop firm, you can typically access higher leverage than you’d usually be able to under FCA or ASIC regulation, allowing control over larger positions, while the firm absorbs potential losses.

Prop firms also reward successful traders through profit sharing and scaling opportunities, increasing account size with consistent performance. This setup allows traders to grow their skills and capital under structured risk management, unlike personal accounts with forex brokers.

Benefits of Trading with a Prop Firm’s Capital

Trading with a proprietary (prop) firm offers unique advantages that can accelerate your growth as a trader. With lower personal risk and increased profit potential, prop firms provide access to capital, higher leverage, and performance-based rewards. Here’s a breakdown of key benefits:

• Access to firm capital, reducing personal risk
• Higher leverage, control larger trades
• Profit sharing, earn based on performance
• Scaling options, grow account with success
• Structured risk limits, develop skills safely
• Potential career path and trading job

How Prop Trading Firms Work

Prop trading firms operate by providing traders with capital to trade financial markets, allowing traders to earn a share of the profits without risking personal funds. Here’s a breakdown of how prop trading firms typically function:

• Funding Programs and Challenges: Most prop firms have a qualification process, often called an audition or challenge, where traders need to meet specific profit targets and risk management rules. Successful completion grants access to funded accounts, with amounts ranging from a few thousand to over a million dollars.
• Profit Sharing: Once traders receive a funded account, they keep a percentage of their profits, usually between 70-90%, depending on the firm’s structure. This profit-sharing model incentivises traders to succeed while the firm benefits from a share of the earnings.
• Risk Management Rules: Prop firms enforce strict risk limits, such as daily or maximum drawdown restrictions, to safeguard their capital. Traders must adhere to these guidelines, which also foster disciplined trading.
• Scaling Opportunities: Many prop firms offer scaling plans, where traders can increase their account size by meeting performance benchmarks. Scaling enables traders to handle larger trades, increasing earning potential with consistent results.
• Trading Platforms and Tools: Prop firms typically provide access to advanced trading platforms like MetaTrader 4 and MetaTrader 5, along with tools such as risk calculators and economic calendars, enhancing traders’ capabilities and helping maintain firm-set risk requirements.

By offering capital, structured challenges, and profit-sharing incentives, prop trading firms allow traders to develop their skills and grow their earnings within a supportive framework, contrasting with the independent risks involved in traditional trading.

Steps to Become a Prop Trader

To become a prop trader, you’ll need to select a prop firm, pass their evaluation challenge, and follow risk management rules to secure a funded account. Here’s more detail on each step to help you get started as a prop trader.

1. Start with the Basics

Before starting into trading, it’s crucial to get the basics down – this sets the foundation for becoming consistently profitable. The following will help you get there:

• Trading Strategy Development: This is where the classic saying “Plan your trades and trade your plan.” comes in. A solid strategy acts as your roadmap, guiding you on when to buy and sell.
• Risk Management: Trading comes with risks, and especially with prop trading, capital preservation is paramount. Understanding how to protect your capital is key.
• Market Analysis: Learn how to study market trends and grasp the broader picture. Being aware of these trends helps you make informed decisions as they happen.

This is also a good time to explore different markets, including forex, crypto, stocks, and indices, to broaden your trading knowledge.

2. Choose a Trading Style That Suits You

There are multiple trading styles, each with its own rhythm and approach – and depending on your risk profile and trading preferences, you can try different trading approaches to find out what works best for you. Here are some popular trading strategies:

• Day Trading: This style is where trades are opened and closed within the same day. It requires quick decision-making and sharp focus on the market.
• Scalping: Scalpers aim for tiny, repetitive profits throughout the day. Scalpers must always be on their toes to capture small price movements quickly and frequently.
• Swing Trading: Unlike day trading and scalping, swing trading positions are held for several days or weeks to catch medium-term price trends. Patience and a broader market view are essential here.

3. Find the Right Prop Trading Firm

Every prop firm has its unique setup, usually with different rules and trading environments. When selecting a firm, consider the following:

• Challenges: Prop firms usually set trials to test your trading skills.
• Spreads and Fees: Some firms offer commission or no commission spreads, and/or charge for access or platform use, so be sure to note any costs involved.
• Profit Splits: This refers to how profits are shared between you and the firm.
• Targets: Trading firms often set specific goals for you to overcome to ensure you’re consistently profitable.
• Trading Rules: Prop firms want to safeguard their capital, so they have rules that traders must follow.
• Financial Markets: Ensure the firm supports the assets you want to trade, whether it’s forex, crypto, or stocks.

Research the firm’s reputation carefully. Look for verified reviews on TrustPilot and feedback from other traders to make sure you’re partnering with a credible, fair company.

For detailed reviews on popular proprietary trading firms you can look at our full list of Prop Firm Reviews.

4. Understanding and Passing the Evaluation Challenge

Most prop firms require traders to pass a challenge before they give you traders capital to trade. It’s their way of screening traders that are consistently profitable and within their rules before firms fund these traders.

Generally, prospective traders must show steady profits while avoiding big losses and managing risks appropriately. This helps firms find skilled, reliable traders rather than getting streaky or lucky traders.

Establishing a Trading Career with a Prop Firm

Starting a professional trading career requires joining a firm that provides the right training, support, and opportunities for growth. If you aspire to become a successful trader, joining a prop firm can be a significant step toward achieving that goal.

Here’s how prop firms can help you to build a sustainable trading career path within online trading.

Scaling Up Your Funded Account

When you demonstrate consistent profitability and responsible risk management, prop firms often increase your trading capital, allowing you to trade with larger sums and potentially boost earnings. Many firms also offer accelerated scaling plans, helping traders reach higher capital levels more quickly.

In some cases, professional and funded traders may even receive a base salary, providing a stable income alongside performance-based profits.

The Power of Mentorship

Many prop firms provide access to experienced mentors who offer valuable insights, feedback, and support. These mentors can help you refine your trading strategies, manage your mindset, and help you survive market challenges.

Trading Community and Collaboration

Professional traders can often feel isolated, but prop firms often foster a community of like-minded traders. Platforms like forums and Discord groups allow you to connect with fellow traders, exchange ideas, discuss market trends, and learn from each other’s experiences. This sense of community can be crucial for motivation, support, and continued learning.

Continuous Learning and Education

Staying ahead in trading requires continuous learning. Prop firms often offer educational resources such as webinars, workshops, and trading tools to help you expand your knowledge and improve your skills. By embracing lifelong learning, you can adapt to changing market conditions and enhance your trading performance.

Combining these elements—scaling opportunities, mentorship, community support, and continuous learning—prop firms provide a structured path to establish a successful trading career.

Choosing the Best Prop Trading Firm for You

Choosing the right prop trading firm can make all the difference in your trading journey. With various options available, finding a firm that fits with your goals, trading style, and resources is essential.

Make sure you consider the following factors:

1. Costs and Profit Splits

• Profit Split – This is how you and the firm share the profits you make. Some firms offer a 75% profit split, while others might offer a 90% share.
• Monthly Fees – Some prop firms, especially futures prop trading firms, charge monthly fees to access their trading platform or participate in their evaluation program, as well as external exchange costs.
• Other Hidden Costs – Look out for any other fees, such as withdrawal fees or inactivity fees. To make things easier, our prop firm reviews do this for you!

2. Funding Options and Scalability

• Funding Options – Different firms offer different account sizes to start with. Some might start you with a $10,000 account, while others offer larger accounts.
• Scalability – Check if you can increase your trading account size as you become more successful. Many firms offer scaling plans that allow you to manage more capital as you consistently make profits.

3. Educational Resources and Trading Platforms

• Prop Trading Mentors – Find out if the firm offers guidance from experienced traders.
• Trading Platforms – Assess the trading platform they use for user-friendliness and reliability. Popular platforms include MetaTrader 4, MetaTrader 5, and cTrader.

4. Comparing Different Prop Firms

• Specializations – Some firms specialize in forex trading with a wide range of currency pairs, while others focus on cryptocurrencies or other assets.
• Alignment with Trading Goals – Choose a firm that aligns with your trading objectives and preferences.

Common Mistakes Beginners Should Avoid in Prop Trading

Starting in professional trading is exciting, but beginners often face common pitfalls that can impact their progress. From overleveraging to skipping essential steps like setting stop-losses, these mistakes are easy to make but crucial to avoid. Here’s a rundown of common errors and how to steer clear of them to build a successful trading foundation.

1. Mistake – Overleveraging

Leverage allows you to control larger positions with a smaller amount of capital, but it also amplifies potential losses. If you borrow too much money to trade and the market moves against you, you can incur significant losses very quickly.

How to avoid it

• Start with Low Leverage: Use minimal leverage when you’re beginning and consider increasing it only as you gain trading experience and confidence in your strategies.
• Assess Your Risk Tolerance: Determine how much you are willing to lose and avoid borrowing more than that amount.

2. Mistake  – Neglecting Stop-Loss Orders

Failing to set stop-loss orders can lead to uncontrolled losses. Stop-loss orders automatically close your trade when it reaches a certain loss threshold, helping to prevent small losses from becoming much larger.

How to avoid it

• Always Use Stop-Loss Orders: Make it a standard practice to set a stop-loss with every trade.
• Set Appropriate Levels: Determine the stop-loss level based on your trading plan and the amount of risk you’re willing to accept for each trade.

3. Mistake – Lack of Discipline

Successful trading requires patience, discipline, and adherence to your trading plan. Making impulsive decisions or letting emotions like greed or fear influence your actions can undermine your trading performance.

How to avoid it

• Develop a Solid Trading Plan: Clearly outline your strategies, risk management rules, and goals.
• Stick to Your Plan: Follow your plan consistently, even when tempted by unexpected market movements.
• Manage Your Emotions: Stay calm and focused, especially during volatile market conditions. Take breaks if you feel overwhelmed.

4. Mistake – Not Understanding the Trading and Challenge Rules

Each prop trading firm has its own set of rules and guidelines, including profit targets, maximum allowable losses, and permissible trading instruments. Not fully understanding these rules can lead to unintentional violations, which may result in penalties or the loss of your trading account.

How to avoid it

• Read the Guidelines Carefully: Take the time to review all of the firm’s policies and requirements thoroughly.
• Ask for Clarification: If anything is unclear, contact the firm’s support team for assistance.
• Monitor Your Compliance: Keep detailed records of your trades and regularly check to ensure you adhere to all rules.

Pros and Cons of Prop Trading

When considering a career in trading, it’s essential to weigh the advantages and challenges. While trading offers high earning potential and access to diverse markets, it also comes with significant risks and demands discipline.