The retail forex industry has fundamentally shifted. Instead of risking their own capital on highly leveraged accounts, thousands of traders are now trading other people’s money through Proprietary Trading Firms (Prop Firms).
How Prop Firms Work
A prop firm provides capital to skilled traders and takes a percentage of the profits (usually an 80/20 or 90/10 split in favor of the trader). However, they don’t just hand over money. You must first pass an evaluation process, often called a “Challenge.”
The Evaluation Phase
Most prop firms require a 2-step evaluation:
- Phase 1: Achieve a profit target (typically 8-10%) within a set time limit, without breaching the daily or maximum drawdown limits.
- Phase 2: Achieve a lower profit target (typically 5%) to prove consistency.
Once you pass both phases, you receive a funded account.
The Catch: Drawdown Rules
Prop firms protect their capital using strict drawdown rules:
- Daily Drawdown (e.g., 5%): If your equity drops 5% below your starting balance for the day, you lose the account.
- Max Drawdown (e.g., 10%): If your equity drops 10% below your initial balance at any point, you lose the account.
Ready to get funded? Compare the Best Prop Firms to find the right challenge for your trading style.