Introduction: What Are Prop Firms?

Proprietary trading firms, commonly known as prop firms, are trading companies that allocate capital to skilled traders and let them trade the firm's funds. In return, successful traders receive a share of the profits they generate, often around 80%.

There are various types of prop firms, but the most widely recognized are CFD Prop firms, often referred to simply as prop firms.

Prop firms typically select traders through a series of challenges designed to test their trading skills. These evaluation phases are intentionally difficult, so passing them requires a high level of skill and discipline.

Once a trader passes the challenge, they move on to the funded phase. Here, the trader manages a real account with the firm's capital, and profits are split according to a predetermined percentage, usually heavily in the trader's favor.

This is the definition of prop firms, but in fact, many of these statements are not necessarily true.

Why Do Traders Choose Prop Firms?

One of the main reasons traders are drawn to prop firms is the potential for much bigger profits than with trading their own limited capital. The conditions provided by prop firms can turn a modest investment in a challenge fee into significant profits.

For example, if a trader deposits $500 into a personal brokerage account and earns a 200% profit, they walk away with $1,000, for a total of $1,500. However, if that same $500 is used to purchase a $100,000 challenge account from a prop firm, passing the evaluation allows the trader to access and trade with a much larger capital base. Profiting just 6% on the prop firm's $100,000 account would net the trader $6,000; also, many prop firms refund the initial challenge fee after the first successful withdrawal.

For many traders, this risk-to-reward profile makes prop firm trading an attractive choice, especially for those who are confident in their trading skills but lack personal capital.

How Do Prop Firms Operate?

While prop firms present the image of funding talented traders and copying their trades onto real markets, the reality for most CFD prop firms is different.

The majority do not actually copy profitable traders' strategies to real brokerage accounts. Instead, their primary income source is the fees collected from trader challenges.

Profitable traders are typically paid out using the challenge fees from those who fail. This creates a system in which the firm's profits are maximized by attracting more challenge participants, rather than by producing successful traders.

Unfortunately, this business model introduces a conflict of interest: denying withdrawal requests or payouts to traders directly benefits the firm financially.

As a result, many traders report firms finding various reasons or excuses to avoid paying out profits, making it crucial to approach prop firms with caution.

Are Prop Firms Scams? Key Red Flags

When checking the legitimacy of a prop firm, third-party review sites are your best friend. TrustPilot is a popular platform where you can read direct reviews from traders about their experiences with specific prop firms. If a prop firm has many negative reviews or consistent complaints, it's wise to stay away.

Propfirmmatch is another valuable resource, offering aggregated reviews and even discount codes for various prop firms. This can help you compare firms more easily and save money on challenge fees.

Lastly, check the social community—especially on platforms like Twitter (now X). If you see a pattern of traders posting proof that a firm is denying payouts without valid reasons, that's a major red flag. Always do your due diligence and pay attention to trader feedback before trusting any prop firm with your money.

Stay away from the firms if:

  • They have negative reviews on third-party websites such as TrustPilot or PropFirmMatch.
  • They have too many complaints on social media, like X, about denying payouts to traders with no actual proof.
  • They have huge discounts (like 80%) on their challenges.

How to Spot a Legitimate Prop Firm

Spotting a legitimate prop firm is actually straightforward:

  • It should not have many of the red flags mentioned above (like negative reviews, payout denials, or excessive discounts).
  • The prop firm should be at least 2 years old—newer firms are less proven.
  • Having their own brokerage is a strong positive sign.
  • Being listed among the top payouts on the Payout Junction website shows that traders are actually getting paid.

The True Costs and Risks of Prop Firm Trading

The real cost of trading with prop firms goes far beyond just the challenge fee.

The highest risk traders face is not just failing a challenge, but dealing with the conflict of interest in many prop firm business models. Since these firms often make money from challenge fees and not real market trading, they sometimes look for reasons to deny trader payouts.

This means that even if you pass the challenge and make profits, getting paid is never 100% certain.

Always be extremely cautious, and understand that the risk with prop firms isn’t only about trading and stop losses.

Tips for Trading with Prop Firms

To reduce the risk of having your payouts denied by prop firms, you can follow some simple rules:

  • Avoid scalping and trading solely on very short time frames.
  • High leverage and rapid trading can be flagged by firms as 'gambling behavior', which is a common excuse for denying payouts.
  • Do not use VPN. But if you do use it, please make sure no other trader has the same IP address as yours.
  • Make sure your IP location doesn't change; changing IP addresses with different country origins will result in a hard breach with most prop firms.
  • Do not use multiple devices when trading with the prop firm account. Different devices will give the prop firm the right to deny payouts for group or copy trading.
  • Do not use a device that has multiple Prop Firm Challenge accounts logged in. This will result in a copy trading or group trading rule violation, and you will get a hard breach.

Conclusion: Are Prop Firms Worth It?

Absolutely, trading with prop firms offers traders the chance to be well rewarded for their trading abilities or to build personal capital for trading on their own brokerage account.

For talented traders who lack significant starting capital, prop firms are among the best ways to break into trading without a large personal investment.

While there are risks and challenges, the opportunity to prove yourself and grow your capital makes prop firm trading an appealing path for many.

If you want my list of trusted prop firms, you can go ahead and start with these:

Of course, make sure you do your own research (DYOR). This is not financial advice, just my opinion and experience.