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Prop firm (proprietary trading firm)

A company that gives traders access to its capital, or a simulated version of it, in exchange for a fee and a share of profits.

Traditional prop firms hire traders and put real capital behind them. The modern retail model sells an evaluation for a fee; passing it earns a funded-account, usually simulated, and a payout-split of profits.

The business model relies on most people failing the evaluation. That is not a reason to avoid them, but it is a reason to understand the rules (daily-drawdown, trailing-drawdown, consistency-rule) before paying.

Example: a firm charges $150 for a $50,000 evaluation with a $3,000 profit-target and a $2,000 trailing drawdown. Pass rates in the industry are commonly reported in the single digits to low teens.

Related: evaluation, funded-account, payout-split, trailing-drawdown, daily-drawdown

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

An equity curve and its drawdownAn account balance rising over a year, falling from a peak to a trough, then climbing back to the old peak.ACCOUNT EQUITY$20k$12k$8k024681012TIME (MONTHS)PEAK $16,000TROUGH $12,000DRAWDOWN−25%RECOVERY
Equity curve and drawdown. An account balance plotted month by month. The fall from the $16,000 peak to the $12,000 trough is a 25% drawdown, and the shaded area lasts until the balance climbs back to the old peak.

Educational only, not advice. Spotted an error? Post in Site Feedback.