What is a prop firm and how does it work

A prop firm is a company that lets traders trade its capital and splits the profit with them. The trader doesn't put their own money into the market: they pay a fixed fee for an evaluation, and if they pass, they get a firm account and keep most of what they earn.

Prop trading in plain words

"Prop" is short for proprietary trading — a company trading its own money. Classic prop firms started on Wall Street: banks and trading houses hired traders as staff, gave them capital and kept the profit, while the trader earned a salary and a bonus.

A modern online prop firm works differently. Anyone on the internet can become a trader, with no interview or CV. The firm tests skill by results on a test account rather than by words — that is the challenge (evaluation).

How a prop firm works

Almost every online prop firm follows the same three-step path.

1. Challenge. You pick an account size and pay a one-time fee. You need to hit a profit target without breaking the loss limits. If you don't make it, the account closes and you lose only the fee.
2. Funded account. Pass the challenge and you get a funded account with the firm's capital. The risk rules stay, the profit target goes away.
3. Payouts. Profit on the funded account is split between you and the firm. Traders usually keep 70 to 90%.

Prop Hub follows the same path: a challenge on $1,000–$50,000 of virtual capital for a fee from $30, then a funded account with up to 90% of the profit paid to you. Step by step — in How it works.

Typical prop firm rules

The rules exist to tell a disciplined trader from a lucky one. Most firms use a similar set:

• Profit target — how much you need to earn on the challenge. At Prop Hub it's +30% of the starting balance.
• Overall drawdown — how far equity may fall from its peak. Ours is no more than −20%.
• Daily drawdown — the loss limit for a single day. Ours is −10% of equity at the start of the day (UTC).
• Risk per trade — how much you can stake on one outcome. Ours is up to 5% of the starting balance.
• Consistency — profit mustn't rest on one lucky day. On our challenge the best day is no more than 30% of total profit.
• Activity — at least one trade every 14 days.

Each rule and how it's calculated — in Challenge rules.

How prop firms make money

A prop firm has two sources of income: challenge fees and a share of the profit of funded traders. Not everyone passes the challenge, so fees are the main income of most firms. It's a normal model, close to a paid exam: you pay for the chance to prove your skill, not for a guaranteed income.

That has a key consequence: a fair prop firm wants strong traders to pass and earn, because their profit share is the other half of the business. An unfair one benefits from vague rules and delayed payouts.

Prop firm vs broker

• A broker executes trades with your own money and earns on commissions and spreads. Losses are yours, with no cap.
• An asset manager trades investors' money, not traders'.
• A prop firm doesn't take your money under management. Your maximum risk is the challenge fee; you never owe the firm money.

At most online prop firms, Prop Hub included, both the challenge and the funded account are a simulation on real market prices: trades don't go to an exchange, while profit payouts are real money.

A prop firm for prediction markets

Prop firms usually cover forex, futures or crypto. Prop Hub is a prop firm for prediction markets: you trade the outcomes of Polymarket events — sports, crypto up/down windows, politics, finance.

An outcome's price is the probability of the event, from $0 to $1: buy "Yes" at $0.40 and each share is worth $1 if the event happens, $0 otherwise. Prices, order books and results come from Polymarket in real time, and only events that resolve within 2 days are tradable. You need no wallet and no money of your own on Polymarket — more in What is Prop Hub.

Pros and risks

Pros:

• trading large capital without your own money in the market;
• risk is capped at the fee;
• most of the profit goes to the trader;
• strict risk rules build discipline.

Risks:

• most traders don't pass the challenge, and the fee isn't refunded;
• one bad streak closes the account if it breaks a drawdown limit;
• terms vary a lot between firms — read the rules before you pay.

You can try it risk-free on the free welcome account ($100 for 3 days) or a demo account with challenge rules.

How to choose a prop firm

1. The rules are published in full — target, drawdowns, consistency, withdrawal terms. No hidden limits in the fine print.
2. Drawdown is clearly defined — from the peak or from the start, on closed trades or on current value.
3. Payouts are documented — timing, methods and minimum amount are stated.
4. There is identity verification (KYC) before withdrawal — a sign the firm actually pays and watches for fraud.
5. You can try it for free — a demo or trial account on the same rules.

FAQ

Is a prop firm a scam?

The model itself isn't: the trader pays to have their skill tested and gets a share of the profit if they pass. Dishonest firms do exist, though — check rule transparency and real payouts against the checklist above.

Can I lose more than the fee?

No. A prop firm account is the firm's capital; if you break the rules it simply closes. Your maximum loss is the challenge fee.

Is the money on a funded account real?

At most online prop firms the funded account is also a simulation on real prices, and the real money is your profit share when you withdraw. At Prop Hub payouts arrive in USDT or USDC after verification — see Payouts.

How much do prop traders make?

As much as the account earns, times the trader's share. For example, +10% on a $10,000 funded account is $1,000 of profit, of which up to $900 is yours. A single payout is capped — see Payouts. There is no guaranteed income.

Are there crypto prop firms?

Yes, many prop firms let you trade crypto. At Prop Hub you pay the fee and withdraw profit in crypto, and the markets include Polymarket crypto up/down windows from 5 minutes.

Do I need trading experience?

Formally no, but passing a challenge without experience is hard. Start with a free account, learn the rules and only then buy a challenge.