Most of today's prop firms make money from challenge fees. Traders pay up front to attempt a trading test on a simulated account, pass or fail, and that fee income has to cover the firm's running costs and the rewards it pays to traders who succeed. Traditional prop firms, which trade their own money, earn from trading instead.
In short
- How do prop firms make money? Evaluation firms earn mainly from challenge fees and paid extras, while traditional prop firms earn from trading their own money.
- A fee counts as income as soon as it is paid. A reward is a cost that arises only when a trader passes and then shows a simulated gain.
- On a simulated account, the reward split is a formula for sizing your reward. The share you do not receive is not money the firm made in a market.
- A firm that relies on fees holds up only while fee income stays above running costs plus rewards, so prices, rules and splits are set together.
- On CMC Funded, fees run from $99 to $549 and the reward split is 80%, or 90% with an add-on.
Where does a prop firm's money come from?
An evaluation prop firm's income comes mostly from challenge fees. Smaller amounts come from paid extras, such as a higher reward split, and at some firms from resets, monthly subscriptions or trading in live markets. The money goes out as rewards to traders and as the costs of running the business.
On the cost side sit the rewards, the trading platform and price data, payment processing, identity checks, support staff and marketing, which often includes commission for affiliates who refer buyers.
A traditional prop firm runs the other way round: trading is its income and its traders are a cost. Our guide to what a prop firm is explains both kinds in more detail.
| Evaluation prop firm | Traditional prop firm | |
|---|---|---|
| Main income | Challenge fees and paid extras | Gains from trading the firm's own money |
| What traders pay | A fee for each attempt | Nothing, traders are hired |
| What traders receive | A reward based on simulated gains | A salary and a bonus from real gains |
| The firm's main risk | Rewards and costs growing faster than fee income | Losses in live markets |
| Where the trading happens | Usually on simulated accounts | In live markets |
How do challenge fees work as income?
A challenge fee is paid before the first trade, so it counts as income whether the trader passes or fails. Fees rise with account size, but far more slowly than the balance does, because a simulated account does not need real money behind it.
On CMC Funded, a $10,000 Classic challenge costs $99 and a $100,000 Classic challenge costs $499. The balance is ten times larger, and the fee is about five times larger. For a firm that relies on fees alone, the money from everyone who buys has to cover the rewards owed to those who pass and perform.
In the prop firm business model, the $100,000 is a simulated number the firm uses to measure your trading. The fee is the price of that measurement, and a reward is a possible cost attached to it.
How do prop firms make money on funded accounts?
On a simulated funded account, your trades earn the firm nothing directly. The reward split decides how much of your simulated gain becomes a reward, and each reward is a cost the firm meets from its income, which is mostly fees, unless it also trades your positions in a live market.
Say a $50,000 account shows a simulated gain of $2,000. At an 80% split, the reward is $1,600. The other $400 stays a number on a screen, and the firm has not earned it, because no market paid it. At a 90% split the reward would be $1,800, so the higher split costs the firm $200 more on the same gain, or 12.5% more.
At a traditional firm the split runs the other way. If a desk trader makes $200,000 of real gains on a 30% bonus share, the trader receives $60,000 and the firm keeps $140,000 that it made in the market. Our guide to funded trading accounts covers the reward stage from the trader's side.
Do prop firms use real money?
Traditional prop firms trade real money. Evaluation firms usually use one of three set-ups: simulated accounts at every stage, a simulated evaluation followed by a live account for traders who pass, or simulated accounts whose trades the firm copies into its own live account. The set-up decides whether the firm can make or lose money on your trades.
With simulated accounts throughout, your gains and losses never reach a market, so the firm's income is fees and extras, and its loss limits define the test. With a live account, the firm takes real market risk on every trader it moves across and needs enough money to cover their losses. With copy trading, the firm picks which traders to mirror and can earn from the consistent ones, but you cannot see which of your trades it copies.
Check a firm's terms for the set-up it uses. On CMC Funded, every evaluation and reward-stage account is simulated.
Worked example: one month at an imaginary prop firm
Every number in this example is invented to show how the model works. None of them comes from CMC Funded or any other firm.
- The firm sells 1,000 challenges at an average fee of $200, which brings in 1,000 × $200 = $200,000.
- Running costs, from the platform and price data to payment processing, support staff and marketing, come to $110,000.
- Sixty traders at the reward stage show simulated gains averaging $1,250. At an 80% split, each reward averages $1,000, so rewards cost 60 × $1,000 = $60,000.
- That leaves $200,000 minus $110,000 minus $60,000, which is $30,000 for the firm.
- After costs, the fees leave $90,000 for rewards. At $1,000 a reward, that covers 90 rewards. At 90 the month breaks even, and at 120 it loses $30,000.
- If all of those traders had bought a 90% split, the same $1,250 average gain would cost $1,125 a reward. Sixty rewards would then cost $67,500, and break-even would fall from 90 rewards to 80. A firm that offers a higher split has to recover that cost, for example by charging for it as an extra.
Three numbers drive the model: the fee, the split, and how many buyers reach the reward stage with a gain. A firm sets the first two directly. The third depends on its rules, because profit targets, loss limits and minimum trading days decide how hard the test is.
How do prop firms not lose money?
Prop firms stay in the black by setting fees so that income covers costs plus rewards, and by writing rules that make the test hard enough to mean something: profit targets, daily loss limits, a maximum loss and minimum trading days. Firms that trade live also cap how much real money any one trader can lose.
On a simulated account, a loss limit saves the firm no money directly, since no market loss happens. It ends accounts that break the rules, so only traders who stayed within the limits reach the reward stage. Our Academy lesson on daily loss and maximum loss shows how those limits work trade by trade.
Firms add other controls too, such as caps on how much one trader can hold across several accounts and bans on practices like exploiting delayed prices. For a firm that relies on fees, none of this removes the basic risk: if sales fall while rewards keep coming, the firm has to meet those rewards from money it has already made. That is why a firm's track record and published rules matter when you choose one.
How this works on CMC Funded
CMC Funded charges a fee for each challenge, set by route and account size, and the reward split at the reward stage is 80%, or 90% with the add-on. Every evaluation and reward-stage account is simulated. Optional extras, such as a higher reward split, are offered at checkout before you pay.
From your side, the useful number is the simulated gain at the reward stage that would make your reward equal to your fee. Divide the fee by 0.8. On a $10,000 Classic account, $99 ÷ 0.8 = $123.75, which is about 1.2% of $10,000.
| Account size | Classic fee | Gain for a reward equal to the fee, at 80% | Direct fee | Gain for a reward equal to the fee, at 80% |
|---|---|---|---|---|
| $10,000 | $99 | $123.75 | $149 | $186.25 |
| $25,000 | $199 | $248.75 | $249 | $311.25 |
| $50,000 | $299 | $373.75 | $349 | $436.25 |
| $100,000 | $499 | $623.75 | $549 | $686.25 |
These figures leave out any add-on, so add its price to the fee before you divide. They also assume you reach the reward stage, which is never certain. What the fee buys is a set amount of room: on a $25,000 Classic account, a daily loss limit of $1,250 on the first day and a $22,500 floor.
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. Allow for them when you judge what gain a strategy can reach.
Common mistakes
- Reading the account size as money the firm has handed you. A $100,000 account bought for $499 is a simulated balance, and the money you have at stake is the fee.
- Comparing firms by split alone. A 90% split on rules you cannot pass is worth less than 80% on rules you can, so compare the fee, the loss limits in dollars and whether the floor is fixed or trailing.
- Assuming the firm gains when you lose. On a simulated account your loss is nobody's gain, and the firm earned the fee when you bought the challenge, whatever happened next.
- Buying a new challenge straight after failing one. Find the rule that ended the account and change the habit behind it first, or the second fee is likely to go the same way.
Questions traders ask
Do prop firms pay real money?
At evaluation firms, a reward is a real payment even though the trading behind it was simulated. That is why rewards show up as a cost to the firm and fees as its income. Each firm's terms set the conditions a reward depends on, so read them before you buy a challenge.
Can you make money with prop firms?
You can receive rewards if you pass the evaluation and then show a simulated gain at the reward stage, but neither step is certain, and one broken limit ends an attempt. Before you buy, work out the gain you would need for a reward to cover your fee, as in the table above.
Do prop firms want you to fail?
A firm earns the fee whether you pass or fail, so your failure costs it nothing. A firm whose challenges nobody passed would struggle to sell them, though. A well-run firm needs rules that disciplined traders can pass, and enough income to cover the rewards those traders earn.
Are prop firms a pyramid scheme?
No. A pyramid scheme pays members for recruiting new members and collapses when recruiting stops. A prop firm sells a test, and rewards depend on trading results, with no need to recruit anyone. The two do share one weakness: at a firm that relies on fees, rewards depend on continued sales, so a firm whose rewards and costs outgrow its sales can run short.
Next steps
For what happens after you pass, read the Academy lesson from challenge to reward stage. The profit calculator turns a price move into dollars, so you can set a trade against the fee table above, and the rules page lists every limit for both routes.
Fees for every account size are on the challenges page.