What is a Prop Trading Firm? All You Need to Know
- Ankit Gupta
- June 25, 2025
Introduction
Whether you are a seasoned trader or just starting out your trading journey, prop trading can be an interesting way. In the world of trading, prop trading firms act as providers, be it with offering capital for trading, coaching, or the latest trading tools. In this blog, you’ll get to understand what a prop firm is, how prop firms work, why you should consider prop firms, how to choose the right prop trading firm, and more. Let’s get started.
Definition of a Proprietary Firm
“A prop trading firm is an entity that provides traders with access to large capital to trade in a simulated environment by paying a small fee, with some conditions attached. In exchange, traders share a pre-decided percentage of their rewards with the firm; the major share of rewards goes to the trader.”
How Do Prop Firms Work?
So now that you have an understanding of what a prop trading firm is, you must be wondering how prop firms work. Well, we have got you covered. Prop firms provide a platform for traders to get a significant amount of funds for a small fee. Let’s help you understand this with a simple flow chart, followed by an example.
Let’s make it clearer with an example:
Suppose you decide to start prop trading with Hola Prime and choose the 2-Step Pro Trading Challenge. You opt for the $5K account, which costs just $48. To qualify, you’ll need to complete the evaluation by hitting the profit target while staying within the risk limits. Once you pass, you’ll receive a funded Hola Prime Account where you can trade and start earning real rewards.
Then, while trading, you can get up to 95% of the rewards you make. For example, if you make 10% profit in your $5K account, it would be $500, and you get to keep 95% of it, which is $475, considering that you choose a monthly payout. And you even get the challenge fee back i.e. $48 you paid.
Benefits of Trading With a Prop Trading Firm
Proprietary trading has gained a lot of popularity in the past decades, and there are strong reasons behind this. Proprietary trading firms offer a wide range of benefits to traders, which help traders to make the best use of their trading skills. Let’s discuss the various benefits of using a prop firm:
1. Access to More Capital:
There are so many traders with exceptional trading skills; however, they don’t have access to capital for trading. Here, prop trading firms come to the rescue and offer a platform to traders where they can get capital by proving their skills and passing the evaluation.
2. Less Risk:
As we explained above, in proprietary trading, you do not use your own capital but rather the capital of the prop firm; consequently, there is very little risk involved. Your risk in proprietary trading is limited exclusively to the fee you pay to obtain the account. This fee can be recovered with your first payout upon successfully clearing the evaluation.
3. Easy to Scale:
Prop trading firms offer scaling options to traders who show consistent performance and make profits. This might not be possible if you are trading with your own capital. This is one great feature that makes traders inclined towards proprietary trading. So, if you have the skills and technique for trading, you should get started with proprietary trading. For example, firms like Hola Prime offer scaling up to $4 million in demo funds.
4. Coaching:
Many prop firms hire expert and experienced coaches to help traders level up their skills and perform better. They offer live sessions, one-on-one coaching, comprehensive resources, and more. Traders get access to learning resources that might not be possible for them otherwise. You can learn more about Hola Prime’s expert trading coaches here.
5. Latest Trading Tools:
When you start trading with a prop firm, you get many tools that you can use to better analyse and plan your trades. Moreover, you can perform analysis of your trades, check the economic calendar, and more, all in one place.
Difference Between Prop Trading Firm and Retail Forex Brokerage
| Category | Prop trading firm | Retail forex brokerage |
|---|---|---|
| Capital | The trader uses the capital provided by the prop firm. | The trader uses his own capital. |
| Risk bearer | Prop firm bears most of the risk. | Trader bears the risk. |
| Revenue model | Rewards earned by the trader are split between the trader and the firm. | Trader keeps the profit and the brokerage earns through commissions, spreads, and fees. |
| Regulatory compliance | Prop firms are less regulated and have their own rules and conditions. | These are more regulated and follow rules set by authorities. |
| Coaching and resources | Coaching and resources are provided. | No coaching and resources are provided. |
1. Capital:
The capital used in proprietary trading is entirely of the proprietary firm. Traders just need to pass an evaluation, and they will get access to significant capital. On the contrary, in retail forex brokerage, traders have to use their own capital for trading. They need to deposit funds in their brokerage account; only then will they be able to trade.
2. Risk Bearer:
In proprietary trading, the financial risk of the traders is limited only to the small fee they pay for the account. However, in retail forex brokerage, the entire capital of the traders remains at risk. Thus, it is safe to say that the risk involved is much lower in prop trading as compared to retail forex brokerage.
3. Revenue Model:
Generally, prop firms use a revenue split model, where both the trader and the firm share the rewards earned by the trader. The split offered varies from firm to firm. If you trade with Hola Prime, you can get up to 95% rewards. In retail forex brokerage, the traders keep the entire profit, and brokerage firms earn through commissions, spreads, and fees.
4. Regulatory Compliance:
Prop firms are generally less regulated and have their own set of rules and regulations. On the contrary, retail forex brokerage firms and platforms are regulated by the rules of the countries they operate in. There is more complexity in the rules and regulations of retail forex brokerage.
5. Coaching and resources:
Prop firms provide a lot of resources for traders, such as free coaching, live sessions, analysis reports, and more. However, no such resources are provided by retail forex brokerage. Hence, if you are looking to level up your trading skills or learn new techniques, these firms can help you achieve this.
How to Choose the Right Prop Trading Firm?
Now that you know everything about proprietary trading firms, it is important that you choose the right firm for trading. Here are the top things that you should pay attention to while choosing a prop trading firm:
1. Firm’s Reputation:
The most important thing to consider when choosing a prop firm is the reputation of the firm. You should check the reputation of the firm through online review sites, forums, Reddit etc.
2. Read Trading Rules and Conditions:
Every trader has their own trading style and techniques; thus, it makes it very essential to read the trading rules and conditions. You must read about the rewards the firm is offering, any fees charged, and what their payout terms are. It is important that you feel comfortable with the prop firm challenge. At Hola Prime, the rules and conditions are created keeping traders at the center point. Read more about Hola Prime’s trading rules.
3. Evaluation Process:
As you have learned above that traders have to pass an evaluation before they can start earning, it is important that you pay attention to the trader evaluation process of the firm. Here, you must read about the rules related to daily loss drawdown, profit targets, and other risk management rules. This would help you choose a proprietary trading firm whose prop trading challenge aligns well with your trading style.
4. Customer Support:
Well, we are not alien to the fact that while trading, traders need excellent customer service to cater to any issues they face. Thus, you should look for a firm that provides 24/7 customer support.
5. Transparency:
When you are paying to get an account with a prop firm, you deserve transparency and a fair level to showcase your skills. While choosing a proprietary trading platform, you should make sure that the firm offers transparency through transparency reports and that you are trading in a real-world environment. At Hola Prime, you get a daily price transparency report so that you can trade with confidence.
Learn more about: How to Choose the Right Prop Trading Firm
Conclusion
We are sure that you must have a clear idea about what a prop trading firm is. It is high time that you start your prop trading journey. Feel free to check out our website for more useful information and resources that can help you get started.
Frequently Asked Questions About Prop Trading Firms:
1. Is it possible to make profits doing proprietary trading?
Yes, traders get the payout of the simulated profits with proprietary trading.
2. How much capital is required to start proprietary trading?
You can take a proprietary trading challenge for as little as $48 and start trading.
3. How many days would it take to get the payout?
With other firms, it might take days. At Hola Prime, you can get a payout within one hour after your request.
4. Do I need any documents to start proprietary trading?
Yes, you might need documents for KYC. Different prop firms have their own set of rules for KYC and documentation.
5. What are the instruments I can trade while doing prop trading?
You can trade a wide range of instruments, including cryptocurrencies, forex trading, indices, and commodities.
Disclaimer: All information provided on this site is for educational purposes only, related to trading in financial markets. It is not intended as financial advice, business or investment recommendation, or as an opportunity or recommendation to trade any investment instruments. Hola Prime only provides an educational environment to traders, including tools, materials and simulated trading platforms which have data feed provided by Liquidity Providers. The information on this site is not directed at residents in any country or jurisdiction where such distribution or use would be contrary to local laws or regulations.