A Beginners Guide to a Prop Firm

[ilovearcherqueen]

Prop Firms Explained (Beginner Guide)

This article is a beginner guide to what prop firms are, how they work, and what all the confusion is about.

What is a Prop Firm?
​

Spoiler

A prop firm is a firm that allows you to trade with their money.

You don’t have to put your own money into trading.

You trade on their behalf.

You split your profits with the firm.​

What is the Catch?
​

Spoiler

The catch is that in order to trade with their money, you have to pass a test, also known as a challenge or evaluation.

To take the test, you have to pay a fee.​

How Does it Work?
​

Spoiler

For example, let’s say you want to take the test, so you pay a fee, let’s say $50.

You then have to try to make an 8% profit in Phase 1.

You then have to try to make a 5% profit in Phase 2.

You have to follow certain risk management rules.

If you don’t succeed, you lose your fee.

If you succeed, your fee is returned to you, and you get a funded trading account, let’s say with $5,000.​

How Do Prop Firms Make Money from You?​

Spoiler

The test is how prop firms filter out unprofitable traders.

The test is how prop firms make money from people who fail along with profit splits.​

The Funded Money is Not Yours

The $5,000 (example) that you get is not your money.

You can’t withdraw it to your bank.

You can’t use it to buy things.

You can only use it to trade.

Only profits can be withdrawn.

How Do You Make Money from Prop Firm Profits?
​

Spoiler

Prop firms typically use a profit split.

The split is typically:

- 90% goes to the trader
- 10% goes to the firm
- 10% to the firm

For example:
- You make $100 profit
- You get $90
- The firm gets $10

The main ways that prop firms make money from traders are:
- When traders fail the evaluation
- When traders are profitable​

What happens after you buy the test?


You are put into a simulated trading environment where you are given money to trade with.

The firm observes:
- How much profit you make
- How much you lose
- If you follow the rules or not

If you break any of the rules, you automatically fail.



1. Maximum total loss
- You are not allowed to lose more than a certain amount of money overall.

For example:
- You start with $5,000
- You are not allowed to lose more than $500
- If you go below $4,500, you automatically fail.

2. Daily loss
- You are not allowed to lose more than a certain amount of money in one day.

For example:
- Daily loss: $250
- If you lose $250 one day, you automatically fail.

3. Minimum number of days
- You are expected to trade for a certain number of days.

For example:
- Minimum number of days: 5 days
- You are not allowed to pass the test in one day or one trade.

4. Position size
- You are not allowed:
* To risk the majority of your money on one trade
* To use very large position sizes
- Even if you make money on a trade, you can still automatically fail if you break these rules.​

Spoiler: What I use, and the cheapest option I found.

Personally I use 5ers propfirm, only because the "2-step" program is relatively cheap for a 2.5k account because i am broke :/

 

[ilovearcherqueen]

The test is how prop firms make money from people who fail along with profit splits.

I realised i made a mistake here and some other places. dont mind that

 

[Doctor Egor]

mirin
i heard the loss limit is a pain in the ass

 

[ilovearcherqueen]

mirin
i heard the loss limit is a pain in the ass

yeah i fucking lost my money twice. it makes me wanna rope

 

[Doctor Egor]

yeah i fucking lost my money twice. it makes me wanna rope

i would def do this after some experience, sounds like a smart move tbh

 

[Doctor Egor]

is this any different than levarage? i know jack shit about trading

 

[ilovearcherqueen]

is this any different than levarage? i know jack shit about trading

Leverage is a different thing.

For example:
A 1:50 leverage, what does this mean?

For every 1 dollar you put in, you can control 50 dollars worth of stock or what ever you bought.

Its a double edged sword.
assume you opened a buy position.
Think of it as a multiplier effect. If the price goes up, your value of shares goes up by a lot. If the price goes down, the value of your shares goes down significantly.

So leverage can help when you are quite certain where the price is headed. But at the same time, people get into lost of debt and lose lots of money over leveraging. Tbh, I would not want to use leverage.

 

[Doctor Egor]

Leverage is a different thing.

For example:
A 1:50 leverage, what does this mean?

For every 1 dollar you put in, you can control 50 dollars worth of stock or what ever you bought.

Its a double edged sword.
assume you opened a buy position.
Think of it as a multiplier effect. If the price goes up, your value of shares goes up by a lot. If the price goes down, the value of your shares goes down significantly.

So leverage can help when you are quite certain where the price is headed. But at the same time, people get into lost of debt and lose lots of money over leveraging. Tbh, I would not want to use leverage.

so the same mechanics as prop firms but with this you put all the risk into one stock?

 

[ilovearcherqueen]

In a way yes. A prop firm gives you only trading money. If you lose a certain amount of the trading money they stop you from trading and you don't owe them a single thing. But in leverage you lose more money if you lose on a trade. Only thing you lose in a propfirm is when you spend money on the test fees. If you pass the test, you get your money refunded back

so the same mechanics as prop firms but with this you put all the risk into one stock?

 

[ghost!]

is day trading really hard

sounds like a retarded question but wondering if its worth it

seems like tjr and coursde selling niggas hype it for no reason

 

[mang067]

how do contracts for futures work when you get funded, do they allocate a certain amount of the account?

 

[ilovearcherqueen]

is day trading really hard

sounds like a retarded question but wondering if its worth it

seems like tjr and coursde selling niggas hype it for no reason

They work IF you have a good strategy and you know a lot about it. It will NOT work if you do not have a good strategy. You need to try and test different strategies, back test it, practice it. Only then you will make some good profit.

 

[ilovearcherqueen]

how do contracts for futures work when you get funded, do they allocate a certain amount of the account?

Yes, after you pass their evaluation test. They refund your money and you can trade with real money on futures