Prop Firm Basics7 min read

What Is a Prop Firm? Proprietary Trading Firms Explained

A proprietary trading firm, usually shortened to prop firm, is a business that provides traders with capital to trade in exchange for a share of the profits. Traditionally this meant a physical office where employed traders sat at desks trading the firm's own balance sheet. The term has since expanded to cover a much larger and more accessible online model, which is what most people mean today when they say prop firm.

The modern retail version, sometimes called a challenge-based or evaluation-based prop firm, works differently from the old desk model. Instead of hiring a small number of traders as employees, a firm sells access to an evaluation process to anyone who wants to attempt it. Traders who pass demonstrate they can follow a defined set of risk rules on a simulated account, and are then given a funded account with the same rules, receiving a share of any profit generated from that point on.

How the evaluation model actually works

A trader pays a one-off fee to access a demo account of a chosen size, funded with simulated capital rather than real money placed at a broker. The account is subject to a profit target and drawdown limits, and the trader's job is to reach the target without breaching the limits within a minimum number of trading days.

On MixFunded, that structure takes a few concrete forms. The 1-Step evaluation has a single 10% profit target; the 2-Step evaluation splits the requirement into an 8% target in the first phase and a 5% target in the second. Both are subject to a 5% daily drawdown limit and a 10% maximum drawdown limit, with a minimum of three trading days before a payout can be requested once funded.

Once a trader clears the evaluation, they move to a funded stage where they trade the same rules for a share of any profit — 80/20 in the trader's favour on MixFunded's standard programs. No money changes hands based on trades in the market itself; the account remains simulated throughout, and the firm pays traders from its own revenue once profit targets are hit under the agreed rules.

How a prop firm differs from a broker

A broker executes your trades in the market and profits mainly from spread, commission, or in some cases from taking the other side of retail flow. Your capital is genuinely at risk in a live account, and your relationship with the broker ends once you deposit and start trading.

A prop firm's evaluation account is not connected to a live market position in the way a broker's client account is. The firm's revenue comes from a mix of evaluation fees, activation fees, and its share of funded-trader profit, not from spread on your trades. This means the firm's incentives are aligned with traders passing sustainably and continuing to trade well, since a trader who breaches rules quickly generates a one-off fee rather than an ongoing relationship.

Where the money actually comes from

This question deserves a direct answer, because it is the one traders ask most often. Firms take in fees from evaluations, and the majority of entrants do not pass — that revenue funds the payouts made to the traders who do pass and go on to trade profitably on a funded account.

A firm that intends to operate for the long term needs a credible way to prove it is actually paying out, not just collecting fees. MixFunded publishes every payout with its transaction ID on a public ledger at /ledger, with a machine-readable feed at /api/public/ledger.json, so anyone can verify the amounts and timing independently rather than relying on marketing claims.

Evaluation and activation fees fund day-to-day operating costs and payouts
Funded-trader profit split is the firm's ongoing share once an account is live
A public, verifiable payout ledger is one of the clearest signs a firm is actually paying traders

Why the model exists at all

Trading with your own capital caps your position size at whatever you can personally afford to risk, and psychologically it is difficult to size up even when your strategy has proven itself on a small account. An evaluation model lets a trader with a working process access a larger account size than they could fund alone, in exchange for proving the process first and giving up a share of profit.

For the firm, the model scales in a way that hiring traders individually never could — thousands of people can attempt an evaluation simultaneously, and the ones who demonstrate real risk discipline are the ones who go on to receive payouts. It is not a shortcut to profitable trading; a trader without an edge will fail the evaluation stage just as they would lose money in a live account, only for a smaller and known cost.

Frequently asked questions

Is a prop firm the same as a broker?

No. A broker executes your trades in a live market and typically earns from spread or commission, while a prop firm evaluates your trading on a simulated account and pays a share of profit once you qualify for a funded account. The two serve different purposes and a trader can use both at the same time.

Do I need to pass an exam to become a prop trader?

You need to pass the firm's evaluation, which tests whether you can meet a profit target while staying inside daily and maximum drawdown limits. There is no formal qualification involved; it is purely a demonstration of trading and risk-management process over a set of live market conditions.

How do prop firms make money if traders keep most of the profit?

Most entrants do not pass an evaluation, so evaluation fees form a meaningful part of firm revenue, alongside the firm's retained share of profit from funded accounts that do perform. A firm intending to operate long term relies on a sustainable mix of both rather than fees alone.

Trade it on a funded account

MixFunded evaluations start from $5. Payouts are processed every Monday in USDT (TRC-20) and published on-chain.

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