What Is a Prop Firm and How Does It Work?

How does a prop firm work? The 5 steps

Here is the full cycle, using Topstep's $50K futures account as the worked example because every number is published in its help center.

1. Buy an evaluation. Topstep's $50K Trading Combine costs $49 a month on the Standard path, or $95 a month with no activation fee, and rebills every 30 days until you pass or cancel. Apex sells one-time evaluations with 30 calendar days of access instead.
2. Hit the target without breaking a rule. On the $50K Combine you need $3,000 of profit, your balance can never touch the $2,000 Maximum Loss Limit, and your best day must stay at or below 55% of the target.
3. Activate the funded account. Topstep charges $149 per Express Funded Account on the Standard path. The funded account is still simulated, but payouts from it are real money.
4. Get paid. Meet the payout rules (on Topstep's Standard path, five winning days of $150 or more), request up to the cap, and keep your split: 90/10 at Topstep, 100% of approved payouts on current Apex Performance Accounts, 90/10 at FTMO Futures.
5. Break a rule and the account closes. You pay for a reset or a new evaluation and start again. Our guide to what to do after you fail a prop firm challenge compares reset and re-buy costs at Topstep, Apex, MyFundedFutures and FTMO.

How prop firms work, stage by stage

1. The evaluation (challenge or combine)

The evaluation is a paid trading test on a simulated account. Topstep calls it the Trading Combine and describes it as "a simulated account with one rule and two objectives": don't hit the Maximum Loss Limit, and reach the profit target while meeting the consistency target. Futures firms usually use one phase. Forex and CFD firms often use two phases, with a second, smaller target.

Billing varies. Topstep rebills monthly with no deadline. Apex's current evaluations are a one-time fee with a 30-day window, no resets, and seven days after passing to pay the Performance Account activation fee.

2. The funded account (usually simulated)

Pass, and you get a funded account with its own rules. Topstep's Express Funded Account is "the simulated funded-level account you earn after passing", and "Topstep pays you real money based on your simulated trading results." Apex calls its version a Performance Account and describes it as "a Simulated Funded (Sim Funded) account". FTMO states that all accounts it provides are demo accounts with fictitious funds.

3. The live account (for a few)

Some firms move consistent traders onto real capital. Topstep's Live Funded Account trades the firm's capital, starts with 20% of the account available to trade, and adds an automatic daily loss limit. In 2025, 0.71% of Topstep traders in an Express Funded Account were called up to Live.

The rules that decide whether you keep the account

• Profit target: the profit needed to pass, such as $3,000 on a $50K evaluation at both Topstep and Apex.
• Maximum loss / drawdown: the floor your balance must never touch. It can be static, trail your end-of-day balance (Topstep's Maximum Loss Limit), or trail your intraday peak including open profit (Apex Intraday). Read end-of-day vs intraday drawdown before you choose; it is the rule most traders get wrong.
• Daily loss limit: a cap on one day's loss. It is optional at Topstep, pauses trading for the session on Apex EOD accounts, and is a hard limit on some other products.
• Consistency rule: a cap on how much of your profit one day can contribute (55% of the target in Topstep's Combine; a best day below 50% of total profit for current Apex payouts).
• Position size and conduct: contract limits, news restrictions and banned practices such as exploiting simulated fills.

The prop firm rule checklist walks through each of these before your first trade.

What a "$50K" or "$150K" account really means

Marketing leads with the account size. What you can actually lose before the account closes is the maximum loss, and that is a small slice of the headline:

Topstep account	Profit target	Maximum Loss Limit	Loss limit as % of size	Max position
$50K	$3,000	$2,000	4%	5 minis / 50 micros
$100K	$6,000	$3,000	3%	10 minis / 100 micros
$150K	$9,000	$4,500	3%	15 minis / 150 micros

One E-mini S&P 500 contract moves $50 per index point, so a 40-point move against one ES contract is the entire $2,000 loss budget on a $50K account. That is why most funded traders size in micro contracts and risk a few hundred dollars per trade.

How do prop firms make money?

Retail prop firms earn from fees, not from trading your account in the market:

• Evaluation fees and rebills. Every attempt is paid, and monthly plans keep billing until you pass or cancel.
• Resets and activation fees. Topstep's reset costs the same as the monthly price; its Standard-path activation fee is $149.
• Data and add-ons. Level 1 data is included at Topstep; Level 2 is $38 a month.
• Their share of payouts. At a 90/10 split the firm keeps 10% of each approved payout.

Because evaluation and funded accounts are simulated, payouts come out of the firm's revenue. The model works for the firm as long as fees from failed attempts cover what it pays winning traders, which is why rules, payout caps and consistency checks exist.

The published numbers show the shape of that model. In 2025, 16.8% of the Trading Combines started at Topstep were passed, and 33.3% of the traders who reached its funded level received a payout. Every failed Combine had already paid its monthly fee. The scale of fee revenue surfaced in the one major US enforcement case: the CFTC's 2023 complaint against My Forex Funds alleged that more than 135,000 customers had paid at least $310 million in fees since November 2021. The court later dismissed that case as a sanction against the CFTC, without ruling on the allegations.

What does a prop firm cost?

Add up the whole path, not the sticker price:

Cost	Topstep $50K example	What to check elsewhere
Evaluation	$49/month (Standard) or $95/month (no activation fee)	One-time fee or subscription? Time limit?
Reset	$49 (Standard) or $95	Are resets offered at all?
Activation	$149 per funded account (Standard path)	One-time, monthly, or none?
Data	Level 1 included; Level 2 $38/month	Platform and market-data fees
Trading costs	$3.78 round turn on ES, $1.22 on MES	Commissions per platform

Promo codes change the first payment, not the rules. Two failed months plus a reset and an activation can cost more than the advertised price, so budget for more than one attempt. For low-cost options, see the cheapest prop firms guide.

Profit split vs what you can actually withdraw

The split tells you what share of an approved payout you keep. It does not tell you how much you can withdraw or when. Topstep's payout policy, for example, sets a 90/10 split, a $125 minimum, and a per-request cap of 50% of your balance up to $2,000 on a $50K Standard-path account. Traders who joined Topstep's new dashboard before January 12, 2026 keep 100% of their first $10,000 in lifetime profits. Apex's current Performance Accounts pay 100% of approved payouts but limit each account to six payouts with caps per payout.

Compare splits side by side in the prop firm profit split comparison, and timing and methods in the payout and withdrawal guide.

Types of prop firms

Futures vs forex prop firms

Topstep, Apex Trader Funding, MyFundedFutures and FTMO Futures sell evaluations on simulated CME futures such as ES, NQ and their micro versions. Forex and CFD firms run currency pairs, index and commodity CFDs on platforms such as MT5 or cTrader. The rulebooks are built differently:

Dollar rules make futures risk easy to size: on a $50K Topstep account you know you have $2,000 to lose before the account closes. Our ranking of the best futures prop firms compares the futures side. The CFD sector also depends on platform vendors: in February 2024, True Forex Funds stopped operating after MetaQuotes terminated its platform licences.

Instant funding firms

Instant funding skips the evaluation for a higher upfront price and usually tighter rules. See instant funding prop firms.

Traditional prop trading vs retail prop firms

In the original sense, proprietary trading means a firm trading its own capital for its own account. In the US, the Volcker rule "generally prohibits banking entities from engaging in proprietary trading", so this kind of prop trading now happens at independent trading firms rather than banks. Most "prop firm" searches today are about the retail model, which works differently:

Are prop firms legit? Regulation and red flags

Many prop firms pay traders, but know what you are buying. Retail evaluation firms sell simulated trading, not brokerage accounts. FTMO says its companies "do not act as a broker and do not accept any deposits". Topstep's simulated programs are run by TopstepTrader, LLC, while its separate brokerage affiliate is the entity that states NFA membership. If a firm claims registration, check it in NFA BASIC.

Regulators have acted against a prop firm once, and that case is a warning in both directions. In 2023 the CFTC sued My Forex Funds' parent, alleging the firm was the counterparty to its customers' trades. In May 2025 the court dismissed the case with prejudice as a sanction for the CFTC's own misconduct, without ruling on the allegations. Firms also close: The Funded Trader paused all operations in March 2024, FundingPips shut its futures arm FundingTicks in January 2026, and futures firm FundedSeat closed in September 2026.

Red flags

• No legal entity, address or terms you can read before paying
• Payout rules that are vague, discretionary or changed retroactively
• Claims of regulation you cannot find on the regulator's own register
• Pressure to buy during a countdown sale before you have read the rules
• Fake urgency about "guaranteed" funding or passing

Our guide to choosing a prop firm turns this into a step-by-step check.

Prop firm vs trading your own account

Factor	Prop firm account	Your own futures account
Money at risk	Fees you pay the firm	Your whole deposit
Loss limit	Firm's maximum loss (for example $2,000 on $50K)	Your own stop, plus broker margin calls
Profit you keep	Your split, within payout caps and schedules	100%
Rules	Targets, drawdown, consistency, conduct	Your plan and your broker's margin
Account type	Usually simulated, with real payouts	Real money at a futures broker

A prop account answers to the firm's rulebook. Your own account answers to regulators and your broker instead: margin, settlement and tax rules all differ between stocks and futures, and our U.S. day trading rules guide covers both before you fund a personal account.

Is a prop firm right for you?

It makes sense if you have a written strategy you already execute mechanically, you can live inside a fixed daily risk budget, and the fees are money you can afford to lose while you learn the rules.

It does not make sense if you are still looking for a strategy, you trade bigger after losses, or you are buying evaluations hoping one lucky day will pass. The rules are built to close those accounts.

If you are new to futures, start with what a futures contract is, then read how to pass a prop firm challenge before you pay for one.

Frequently asked questions

Sources

1. Topstep: pricing and payment questions (Combine, reset, activation and data prices)
2. Topstep: what is the Maximum Loss Limit?
3. Topstep: consistency target and profit targets
4. Topstep: payout policy
5. Topstep: 2025 trader performance statistics
6. Topstep: Express Funded Account parameters
7. Topstep: Live Funded Account parameters
8. Apex Trader Funding: EOD Performance Accounts
9. Apex Trader Funding: evaluation plan fees and access
10. FTMO Futures: how it works
11. FTMO: trading objectives for the 1-Step and 2-Step Challenge (CFD rules)
12. FTMO Futures: payouts from a Sim-Funded Account (not a broker, no deposits)
13. Federal Reserve: the Volcker rule
14. NFA BASIC registration lookup
15. CFTC press release 8771-23 (My Forex Funds complaint)