Trading Essentials
What is prop trading? The information traders need to know when participating in
6 min read

what is prop trading

The term "prop firm" is becoming increasingly common in the financial market. It is important to have a strong understanding of this concept, as there are many related issues and notes to consider. By gaining a clear understanding of this information, traders can reduce their risks when participating. In this article, you will learn more about prop trading and what you should prepare for when starting to take part.  

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Overview of prop Trading

Trade funds are a type of investment fund that offers capital to traders to enable them to trade and earn profits. However, traders must undergo multiple rounds of trading skill assessments to qualify for the funds. After successfully passing the evaluation round, participants will be granted a funding account and receive a portion of the profits generated from the allocated capital.

Every funding fund will come with its own set of conditions. If a participant fails to meet these requirements, their funding account will be terminated. Despite the risk, this presents an opportunity for traders who may not have substantial capital to invest. Nevertheless, prop trading is challenging, and not everyone is eligible to take part.

Benefits and limitations of prop trading

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Prop trading is not solely dependent on the amount of capital given to a trader; it also serves as a platform for traders to enhance their trading abilities. This is because the accompanying terms will assist traders in maintaining trading discipline and consistently monitoring the indices.

One advantage of prop trading is the availability of investment capital. Unlike when trading on your own, prop traders have access to capital of thousands of dollars, enabling them to make larger profits. Additionally, prop trading typically shares profits up to 80-90%, making it possible for traders to earn significant profits when trades are successful.

In addition to the benefits mentioned above, participating in prop trading also comes with the advantage of having access to a trader community and helpful documents. Typically, funding companies establish a trading community and provide educational courses. This enables us to learn from successful traders and their proven strategies.


The benefits of prop trading are undeniable. However, there will be limitations that traders need to pay attention to when intending to participate. First, the participation rules are too strict, causing some obstacles. Therefore, sometimes it will pressure traders when participating in prop trading.

Next are the fairly low leverage levels, usually ranging from 1:1 to a maximum of 1:500. This will limit traders' ability to make profits. However, this also has its reasons. Fund providers want to guide traders to stable performance, so this helps them practice risk management.

Types of Accounts 

prop trade

Although there are many different types of prop trading, we can classify account types into three types: challenge accounts, fund accounts, and growth accounts. With each type of account, there will be certain differences, but they are usually consistent, depending on the provider. Let's see more about these accounts.

Challenge account

This is the most common type of account when participating in prop trading. Traders will be given a funding account after completing the challenges. Depending on the fund provider, the account will have 2 or 3 challenge rounds. The requirement will usually be a profit target, account drawdown, or number of trading days. Participants will pay the fee only once, and depending on the fund, this fee will be refunded or not.

Usually, the demo account will be the one with the lowest costs and the best leverage. But in return, challenge programs will take quite a long time, even several months, so traders will choose to increase capital by purchasing larger challenge packages.

Funding account immediately

With this account, traders are "renting capital" from the fund, and participants will have to pay a significant fee to participate in trading the fund. Profit sharing ratio in fund account Not too attractive, but in return for higher leverage.

Growth account

Growth accounts receive relatively little attention from traders. When participating in prop trading in this account, every time a milestone set by the fund is reached, the trader will receive additional capital, which can reach millions of dollars. However, the disadvantage of an account like this is that the fee is quite high and the initial capital allocated is small. Perhaps for this reason, traders are less interested in growth funds.

Prop trading experiences for newbies

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The prop trading program sounds attractive, but it is not easy to achieve a high capital amount. So how should a new trader participate in prop trading?

Choose a reputable prop trading program

Finding out the reputation of exchanges, companies, or financial services is significant. When we join prop trading, we need to do research in advance to avoid risks and losses for ourselves. There are many ways to evaluate prop trading.

First, traders should consult information from reputable review sites such as Trustpilot, QuyFX, or other fund review sites. Additionally, traders can view feedback from their trader community and reactions on the fund's social media pages.

Find out the fund's regulations

After evaluating and choosing a suitable fund, traders now need to carefully learn the conditions and regulations of the fund. After understanding the regulations, traders will always consider and maintain discipline when trading and avoid violating prohibitions that lead to losing their accounts.

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Select account type

In this step, you will choose each account type to suit your trading strategy. Some funds will provide additional Demo or free experience accounts for traders to experience before officially starting.

Make a capital management plan

Most people will find reasonable methods to trade funds, but they need to pay more attention to how to manage capital effectively. Thus, capital management is extremely important; traders must consider it effectively to maintain profits and allocate capital appropriately.

Register and trade funds

After careful preparation, you just need to register to participate and start the journey to conquer the funding fund. Traders should also note that some funds are restricted to certain countries.


Proprietary trading, or prop trading, presents a chance for traders to access significant capital for their trades. However, this opportunity comes with the requirement of passing a rigorous testing process and adhering to specific account conditions. 

The selection of funds depends on various factors, such as your trading strategy and habits. The above text offers a general overview of prop trading, and further reading can provide additional insights into this exciting field.

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