What a prop firm is

"Prop" is short for proprietary trading — trading a firm's money rather than your own. Today the word covers two very different businesses.

Traditional prop firms

Firms that hire traders (often in an office), give them firm capital and training, and share the profits. They usually take very few traders and select them carefully.

Evaluation ("funded trader") firms

The model most retail traders mean today:

1. You pay a fee for an evaluation account.
2. You try to hit a profit target without breaking the loss rules.
3. If you pass, you get a funded account (often after an activation fee).
4. You keep a share of profits you withdraw, under the firm's payout rules.

Why traders use them

• Trade bigger size than their own account allows.
• Cap the loss at the fee instead of their own capital.
• Structure — hard limits force discipline.

The trade-offs

• Fees and resets add up quickly.
• Rules (especially trailing drawdown) can end accounts that would have survived in a personal account.
• Funded accounts are often simulated — covered in its own lesson.
• The industry is lightly regulated; firms change terms, and some have shut down.

Quick recap

1. Traditional prop = employment with firm capital.
2. Evaluation firms = you pay to try for a rule-based funded account.
3. Know you're buying a product with rules designed by the seller.