A Prop Account (Proprietary Trading Account) is a type of trading account provided by proprietary trading firms to traders. In this model, the firm supplies the necessary capital, allowing traders to trade in financial markets such as Forex, stocks, and crypto using the firm’s funds. The profits generated from trades are shared between the trader and the prop firm based on a predetermined percentage.
The primary goal of prop accounts is to enable traders to capitalize on market opportunities without requiring substantial personal capital. In return, the prop firm leverages the trader’s skills to grow its capital.
Types of Prop Trading Accounts
Prop trading accounts come in different types, including:
1. Institutional Prop Accounts
An Institutional Prop Account is a type of trading account backed by large capital and is exclusively offered to professional and experienced traders. These accounts are typically designed for specific trading strategies and restricted markets, limiting the trader’s flexibility in managing trades.
In this account model, financial institutions enforce strict regulations to control risk and maintain the firm’s profitability. Traders looking to access these accounts must undergo rigorous challenges and evaluation stages. However, upon successful completion, they gain access to professional trading tools, exclusive market data, and advanced trading platforms, which would otherwise come with high subscription costs.
2. Independent Trader Prop Accounts
These flexible prop trading accounts differ from corporate accounts as they are not bound by rigid organizational restrictions. These accounts typically hold substantial capital, with the primary focus being on trader profitability, without enforcing any particular trading methods or strategies. Traders are free to operate in any market with any trading style, as long as they maintain a profitable performance.
Independent Trader Prop Accounts are usually offered by independent traders and major market investors to other traders who trade on their behalf. The defining feature of these accounts is the high degree of freedom they provide, meaning they have fewer restrictions compared to corporate prop accounts. Traders can trade any asset using any strategy, making these accounts ideal for traders with strong experience and risk management skills, who prefer to operate without restrictive regulations.
3. Retail Prop Accounts
These prop trading accounts are designed for beginner and non professional traders. As a result, the capital allocated in these accounts is lower compared to institutional prop accounts. They serve as a testing ground for traders to demonstrate their skills, and some firms use them as part of their trading education programs and development of trading skills.
The key characteristics of Retail Prop Accounts include simpler challenges, built in training resources, and trading support. Additionally, they come with a lower risk level, allowing new traders to gain experience without excessive financial pressure or stress. Prop firms generally do not have high profit expectations from these accounts, as their main objective is long term investment in promising traders, preparing them for larger and more professional accounts.
Different types of Prop Accounts
This section explores the various models of prop trading accounts:
1. Direct Funding Model
In this model, traders receive a prop account with a specified capital without having to go through any challenge or evaluation process.
Profit sharing is usually lower compared to other models, but traders can start trading immediately.
This model is ideal for experienced and professional traders with a strong track record.
2. One Step Evaluation Model
Traders must prove their skills in a single evaluation phase.
Typically, this model includes a specific profit target and a maximum drawdown limit.
It is faster than multi stage models and is ideal for traders with a stable strategy and strong risk management skills.
3. Two Step Evaluation Model
This is the most common model among prop trading firms.
Traders must pass two evaluation stages, which include achieving a set profit target, adhering to stop loss rules, and applying proper risk management.
While more challenging than the one step model, it offers higher profit sharing percentages.
Suitable for traders with consistent trading strategies and strong discipline in following the rules.
4. Three Step Evaluation Model
This model involves three rigorous evaluation stages, designed for low risk and highly skilled traders.
It enforces stricter capital management rules and tighter trading restrictions.
Prop firms usually offer higher profit sharing and additional benefits for traders who successfully pass this model.
What is a Prop Challenge?
A Prop Challenge is an evaluation test conducted by proprietary trading firms to assess traders’ skills and risk management abilities. In this challenge, traders must trade within a demo account, following specific rules and restrictions, to reach a predefined profit target while ensuring they do not exceed the maximum allowed loss.
How to Pass a Prop Challenge?
The following key strategies and tips will help you successfully pass a prop trading challenge:
1. Carefully Read and Understand the Rules
Every prop firm has specific rules, such as: Maximum drawdown limits, Minimum trading days required and Profit targets and position sizing limits
Ignoring these rules can result in disqualification, even if you are profitable.
2. Implement Strong Risk Management
Control risk per trade: Avoid risking more than 1 2% of your account per trade.
Avoid excessive leverage: High leverage can wipe out your account quickly.
Plan your exit strategy: Always define your stop loss and take profit levels before entering a trade.
3. Stick to a Tested and Proven Trading Strategy
Back test your strategy in a demo account before starting the challenge to ensure its effectiveness. If you constantly change your method during the challenge, you will most likely fail.
Stick to one time frame and market instead of randomly jumping between different assets.
4. Focus on Consistent Profits, Not Quick Gains
You don’t need to hit the profit target in the first few days, take trades strategically.
If you hit the daily loss limit, stop trading and return the next day.
Respect market volatility: only enter trades when you see high probability setups.
5. Strengthen Your Trading Psychology
Fear and greed are your biggest enemies. never overtrade to recover losses.
Be patient and trust your strategy. rushing to make profits leads to poor decisions.
Take breaks between trades. if you experience consecutive losses, step away from the screen to reset.
6. Pay Attention to the Minimum Trading Days Requirement
Many prop firms impose a minimum number of trading days as part of their evaluation process.
Even if you reach the profit target early, you must continue trading with proper risk management for the remaining days to maintain the account’s eligibility.
7. Focus on Gradual Account Growth
Instead of taking high risk trades, prioritize steady and sustainable profits.
If you achieve early gains in the challenge, reduce your risk exposure and proceed cautiously for the remaining days.
Even if, by the end of the challenge, you exceed the minimum profit target by just 1%, you will still pass successfully!
Pros and Cons of Using a Prop Account
Access to Larger Capital
One of the most prominent advantages of prop trading accounts is that traders can access capital far greater than their personal investment. This feature enables traders to enter larger positions in the market, significantly increasing their profit potential. For those with limited personal funds but solid trading strategies, this opportunity is extremely valuable. Prop trading firms often provide traders with access to tens or even hundreds of thousands of dollars, an amount that may be difficult for many individuals to raise independently.
Reduced Personal Financial Risk
With prop trading accounts, traders are not risking their own capital directly. This is a crucial advantage since it allows traders to gain experience in financial markets without the fear of losing their personal savings. While effective risk management is still essential, the absence of personal financial exposure makes prop accounts a safer way for traders to refine their strategies and skills. If managed properly, the risk of personal financial loss is entirely eliminated.
Attractive Profit Sharing
Another appealing feature of prop trading accounts is the generous profit sharing model offered by many firms. Some prop trading companies pay traders up to 80% or even 90% of their trading profits. This arrangement can create a substantial income stream for successful traders who consistently perform well in the market.
Account Growth and Expansion
Some prop trading firms gradually increase the allocated capital for traders who demonstrate consistent positive performance. This feature allows successful traders to execute larger trades in the future and potentially earn greater profits. The gradual growth of the account means enhanced purchasing power in the market and increased opportunities for successful investments.
Eliminating the Need for Large Personal Capital
Many novice and even experienced traders face financial limitations. Securing substantial capital to enter financial markets can be challenging for some individuals. Prop trading accounts enable traders to access global trading opportunities without the need for significant personal savings.
Improvement of Trading Skills
Prop trading challenges are typically accompanied by specific rules and conditions that require traders to refine their trading skills. These challenges teach traders how to manage risk effectively, adhere to their trading strategies, and maintain trading discipline. This experience can have a positive long term impact on a trader’s professional growth and success in financial markets.
Disadvantages of Using a Prop Trading Account
Strict Challenges and the Risk of Failure
To obtain a prop trading account, traders are usually required to participate in trading challenges that are governed by strict rules. These rules typically include risk management limitations, defined profit targets, and adherence to stop loss conditions. Many traders fail these challenges due to intense psychological pressure or insufficient risk management skills, ultimately preventing them from securing a prop trading account.
Limitations on Trading Strategies
Some prop trading firms impose restrictions on certain trading styles. For instance, traders may encounter limitations when employing strategies such as scalping, news based trading, or automated trading systems (EAs). These restrictions can pose a significant challenge for traders who rely heavily on specific strategies to achieve consistent profits.
Strict Risk Management Rules
Most prop trading firms establish strict risk management rules. These rules typically include maximum drawdown limits, defined daily stop loss levels, and a minimum number of required trading days. Adhering to these rules can sometimes be challenging for certain traders and may result in early termination of the prop account. Failure to comply with these regulations, even in situations where the trader is profitable, can lead to account closure.
Challenge Fee Requirement
To participate in prop trading challenges, traders are typically required to pay an entry fee. In the event of failing the challenge, this fee is generally non refundable. Therefore, traders should ensure they possess the necessary knowledge and skills before investing in these evaluations to minimize the risk of financial loss.
Risk of Dealing with Unreliable Firms
Unfortunately, not all prop trading firms are trustworthy. Some may operate with unclear intentions, delay or refuse profit payouts, or modify their conditions in ways that disadvantage the trader. Selecting a reputable and well established prop trading firm with a solid track record of timely payouts and transparent policies is crucial to ensuring a secure and fair trading experience.
Is Buying a Passed Prop Account the Right Choice?
Buying a passed prop account may initially seem like a shortcut to entering the world of prop trading. If you lack the time to complete the challenges yourself, a passed prop account might be a convenient option. However, this approach comes with significant risks and consequences. Before making a decision, it is crucial to carefully examine the advantages and disadvantages of this method.
Advantages and Disadvantages of Buying a Passed Prop Account
In this section, we discuss the advantages and disadvantages of purchasing a passed prop account:
Saving Time and Energy
Passing prop firm challenges is often a time consuming and difficult process. These challenges require strict adherence to risk management rules, maintaining predefined stop loss and profit targets, and controlling emotions in high pressure situations. Many traders spend weeks or even months attempting to pass these evaluations. Purchasing a passed prop account can shorten this lengthy process and take you directly to the stage where you can start earning and withdrawing profits.
Reducing Stress from Prop Firm Challenges
One of the primary reasons traders fail in prop firm challenges is the intense psychological pressure and the strict rules these evaluations impose. Traders may make impulsive decisions under stress, ultimately losing their account. Buying a passed prop account eliminates this stress entirely, allowing traders to skip the evaluation process and proceed directly to managing their account and earning profits.
Opportunity to Trade with Larger Capital
Many traders, despite having profitable strategies, fail to pass prop firm challenges. These individuals may fall short due to stress, human error, or even miscalculations that prevent them from achieving the required targets. Purchasing a ready made prop account offers traders the opportunity to enter the market with larger capital and implement their profitable strategies on a broader scale.
Disadvantages and Risks of Buying a Passed Prop Account
Mismatch in Personal Information
One major concern when purchasing a passed prop account is that most prop firms register the account under the name of the individual who successfully passed the challenge. If your personal information does not match the original account holder’s details, the prop firm may detect this discrepancy and suspend your account. In such cases, not only will you lose your potential profits, but you may also forfeit the initial investment you paid for the account.
Risk of Detection by the Prop Firm
Many prop firms use advanced systems to detect changes in trading accounts. These systems monitor IP address changes, device information, and trading patterns. If a prop firm detects that the account is being managed by someone other than the original account holder, the risk of account suspension without warning is extremely high. Even if the account is profitable, the firm may void all earnings and terminate the account, resulting in significant financial loss.
Lack of Knowledge About the Firm’s Rules
When a trader has not personally completed the prop firm challenge, they may be unfamiliar with the firm’s detailed rules and risk management guidelines. Many prop firms impose strict conditions regarding maximum drawdown limits, daily loss caps, and minimum trading days. Failing to understand these rules can lead to accidental violations, resulting in account suspension.
Risk of Fraud When Buying a Prop Account
Unfortunately, the online market has seen cases of fraudulent individuals selling fake or invalid prop accounts. In some instances, traders may purchase an account only to discover that it was previously suspended or never existed at all. In other cases, sellers may reclaim the account after receiving payment, leaving the buyer with a financial loss. To avoid such issues, purchasing a prop account only from reputable and well known sources is crucial.
Lack of Support for the Buyer
In the event of issues with the account, prop firms typically provide support only to the original account holder. If you purchase an account and encounter a problem, you may not have access to the firm’s official support team. This lack of access can leave you vulnerable in critical situations, potentially resulting in the loss of your investment or profits.