A prop firm, short for proprietary trading firm, is a company that trades its own money or, more often, sells traders a rules-based evaluation and rewards those who pass. When people ask what is a prop firm, they usually mean the second type: you pay a fee, trade a simulated account and stay inside loss limits.
In short
- A proprietary trading firm either trades its own money through its own staff, or sells outside traders a paid evaluation on a simulated account.
- In the evaluation model you buy a challenge, reach a profit target without hitting a daily loss limit or a maximum loss, and then move to a reward stage.
- At the reward stage, the reward split sets your share of simulated gains: 80% on CMC Funded, or 90% with an add-on.
- Your real cost is the fee. A loss on a simulated account is not a debt you have to repay.
- A broker is different: there you trade your own deposit, and every loss comes out of it.
What is a prop firm in trading?
In trading, "prop firm" covers two different businesses. A traditional prop firm employs traders to trade the firm's own money in live markets and keeps most of what they make. An evaluation prop firm, the kind most retail traders mean, sells a trading test on a simulated account and pays rewards to people who pass it and then perform.
Market makers, high-frequency trading firms and some banks run the traditional kind. Their traders are employees on a salary and bonus, and a bad month costs the firm real money.
If you have searched what are prop firms and found $100,000 accounts on sale for a few hundred dollars, you have found the evaluation model. Anyone can buy a challenge, the rules are published in advance, and the account you trade is usually simulated. Our guide to how prop firms make money explains where the firm's income and your rewards come from.
How does a prop firm work?
An evaluation prop firm works in three steps. You buy a challenge for a chosen account size, trade a simulated account until you reach a profit target without breaking the loss limits, and then move to a reward stage, where part of any simulated gain becomes your reward.
- You choose an account size, such as $10,000 or $100,000, and pay a fee that rises with the size. On CMC Funded it runs from $99 for a $10,000 Classic account to $549 for a $100,000 Direct account.
- You trade under published rules until you pass. A two-step challenge has two phases, each with its own profit target, and a one-step challenge has one. Break a loss limit and the attempt ends.
- You trade at the reward stage, where loss limits usually still apply and the reward split sets your share of any simulated gain. Much of the industry calls this a funded account, and our guide to funded trading accounts explains how it differs from the evaluation.
Prop firm trading in this model is mostly about loss control, since one oversized loss can end an account that took weeks to build. That makes it a better fit for traders who already have a tested plan than for beginners, who pay a new fee every time they learn a lesson the hard way.
What is a prop firm challenge?
A prop firm challenge is the paid evaluation you must pass before the reward stage. It sets a profit target to reach and limits on how much you can lose in a day and in total, and most challenges also require a minimum number of trading days. Reach the target inside the limits and you pass.
- The profit target is the gain you need, as a percentage of the starting balance. An 8% target on $10,000 means reaching $10,800.
- The daily loss limit caps what you can lose in one day. Some firms measure it on balance, which counts closed trades only, and others on equity, which includes open trades. Equity is stricter, because a losing trade you have not closed still counts.
- The maximum loss is a floor your account must stay above. A fixed floor stays at one level, while a trailing one moves up as the account makes new highs, so a fixed floor gives you more room once you are ahead.
- Minimum trading days stop an account passing on one lucky trade.
Some firms also set time limits or consistency rules, which cap how much of the target can come from one day. These rules shape how hard a challenge is far more than the reward split does, so read all of them before you pay. Our Academy lesson on daily loss and maximum loss works through both limits trade by trade.
Prop firm vs broker: what is the difference?
A broker gives you access to markets with your own deposit, so every gain and loss is yours. An evaluation prop firm gives you a simulated account for a fee and pays rewards based on how you trade it. A traditional prop firm hires you to trade its own money.
| Broker | Evaluation prop firm | Traditional prop firm | |
|---|---|---|---|
| Whose money is in the account | Yours | Usually none: the account is simulated | The firm's |
| What you pay to start | A deposit | A challenge fee | Nothing, you are hired |
| What you can lose | Your own money | The fee | Your bonus, or your job |
| How you are rewarded | You keep every gain and every loss | A share of simulated gains | A salary plus a bonus |
| Who sets the risk rules | You, within margin requirements | The firm's published rules | The firm's risk managers |
At a broker, a 10% fall on a $10,000 account costs you $1,000 of your own money. On a $10,000 Classic account on CMC Funded, the same fall takes the account to its $9,000 maximum loss floor, and your real cost is the $99 fee.
Worked example: a $10,000 Classic account from fee to reward
The trades here are invented. The rules and the fee are CMC Funded's published ones for a $10,000 Classic 2-Step account.
- You pay the $99 fee and choose your leverage, from 1:10 to 1:500, at the same price. Higher leverage magnifies both gains and losses.
- Phase 1 has an 8% profit target of $800, so the balance needs to reach $10,800, and you must trade on at least 3 days.
- The daily loss limit is $500, which is 5% of $10,000, measured on equity. The maximum loss floor is $9,000 and never moves.
- Say you risk 1% of the starting balance, $100, on each trade. Four full losses in one day cost $400 and leave $100 of room. A fifth reaches $500, and reaching the limit ends the account, with no warning stage.
- Open trades count. If you have closed two losers for $200 and an open trade is down $300, you are at $500, and the limit is reached before you close anything.
- A good day does not widen the limit. If you made $600 yesterday, today's limit is still $500, and room you did not use does not carry over.
- Phase 2 has a 5% target, which is $500 on $10,000, and needs at least 3 more trading days.
- At the reward stage the split is 80%. If the account shows a simulated gain of $700, your reward on that gain is $560. With the 90% add-on, bought at checkout, it would be $630.
Across that whole path, the only money you spent was the $99 fee and any add-on you chose.
How this works on CMC Funded
CMC Funded has two routes, Classic 2-Step and Direct 1-Step, in sizes from $10,000 to $100,000, on the Match-Trader platform. Every evaluation and reward-stage account is simulated. There is no time limit, news trading is allowed, and you can hold trades overnight and over the weekend, with holding costs.
| Rule | Classic 2-Step | Direct 1-Step |
|---|---|---|
| Profit target | 8% in Phase 1, 5% in Phase 2 | 10% |
| Daily loss limit, measured on equity | 5% of each day's starting equity | 4% of each day's starting equity |
| Maximum loss, fixed | 10% of the starting balance | 6% of the starting balance |
| Minimum trading days | 3 per phase | 3 |
| Reward split | 80%, or 90% with the add-on | 80%, or 90% with the add-on |
| Fee for $10K / $25K / $50K / $100K | $99 / $199 / $299 / $499 | $149 / $249 / $349 / $549 |
In dollars, a $100,000 Classic account has a $5,000 daily limit on its first day and a $90,000 floor, and a $100,000 Direct account has a $4,000 daily limit and a $94,000 floor. Direct asks for one larger target with tighter limits, while Classic splits the target over two phases and gives you more room.
You can trade forex, indices, commodities, shares, cryptocurrencies and prediction markets, but not futures or options. Simulated trades carry trading costs, as they would on a live account: a commission when a trade opens and when it closes, a price markup on some symbols, and holding costs on positions kept overnight. Optional extras, such as a higher reward split, are offered at checkout before you pay. The full sequence, from buying a challenge to the reward stage, is on how it works.
Common mistakes
- Treating the account size as money you can lose. A $100,000 Classic account has $10,000 of room above the floor and $5,000 in any one day, so size your trades from those numbers.
- Forgetting open trades. On an equity-based limit, a floating loss counts the moment it appears. Set your own daily stop below the firm's limit, for example $400 on a $10,000 Classic account, and stop trading when you reach it.
- Racing to the target. CMC Funded has no time limit, so there is no reason to double your size near the end of a phase. Keep the same risk per trade from the first day to the last.
- Comparing firms by reward split alone. An 80% split with a fixed floor can suit you better than 90% with a trailing one, so compare the loss limits in dollars first.
Questions traders ask
How much is a 100k prop firm account?
Prices vary by firm and by route. On CMC Funded, a $100,000 Classic 2-Step challenge costs $499 and a $100,000 Direct 1-Step challenge costs $549. The $100,000 is a simulated balance, so the fee is the whole price of the evaluation and you deposit nothing on top.
What happens if you lose a prop firm's money?
On an evaluation account there is no real money to lose. The loss is simulated, and at most firms, reaching the daily loss limit or the maximum loss ends the account. You do not owe the firm the shortfall. Your cost is the fee you paid, plus any add-ons you bought.
Do prop firms ban you if you make too much money?
A prop firm's terms list what can end an account, so read them before you buy. At a well-run firm, that list covers broken loss limits and banned practices, such as exploiting delayed prices, rather than the size of your gains. If a firm's terms are vague on this point, treat that as a warning sign.
Next steps
To see what each rule means for a single trade, work through the Academy lesson on how a challenge works, then size a trade against your daily limit with the position size calculator. Every limit for both routes is listed on the rules page.
Account sizes and fees are on the challenges page.