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Prop firm accounts · What a prop firm is

What is a prop firm, and how does a funded account work?

A prop firm is a private company that charges you for a trading test and undertakes to pay you a share of the result if you pass it and keep following its rules. That is the whole deal, and it is worth holding it in that one sentence before adding anything to it.

What almost nobody explains is that the term means something else in law, and half the misunderstandings in this industry come out of that gap. This page sorts out the name, takes the mechanics apart step by step, and translates the vocabulary you meet on day one.

Sources read at origin on 31 August 2026 · linked at the end

This page explains the model, it does not assess any firm

The anatomy of the deal, unadorned

What you pay
a fee
for the evaluation
What you do not buy
capital
or an account of your own
Who writes the rules
the firm
and it can change them
Where it happens
on its platform
usually simulated
What you collect
a reward
defined in the contract

No figures on purpose: fees, account sizes and splits change by firm and by week

Why the name is misleading

Because in law it means the opposite. Dealing on own account is trading with the firm's own capital, and in a funded account nobody at the table has capital in play.

The term is defined in European legislation. Article 4(1)(6) of MiFID II says that "dealing on own account" means "trading against proprietary capital resulting in the conclusion of transactions in one or more financial instruments". Spain's Ley 6/2023, the securities markets act, lists that same activity among the investment services that only authorised firms may provide.

That is the classic business: a trading desk risking the house's money, with employees, with its own capital exposed and with the authorisation such a business requires. It exists, it is old, and it has nothing to do with paying for a test on the internet.

And here is the sentence that cannot be left out: the shared name does not mean these firms are breaching anything. A company that does not execute orders for you, does not hold your money and does not recommend trades tailored to you is not dealing on own account with you, so it does not need that authorisation for what it does. The overlap in terminology is a problem of expectations, not an infringement.

The firms themselves use the word openly: FTMO's home page is titled "The Modern Prop Trading Firm since 2015". The word "modern" is doing a great deal of work in that sentence, and doing that work is what this page is for. What does sit outside the supervisory perimeter, and what that means on the day something goes wrong, is set out in the page on whether prop firm accounts are legit.

How it works, end to end

Five steps, and the money changes hands in the first one. Everything after that runs on rules only one of the two parties writes.

  1. You pay a fee and receive an account with rules

    The fee buys a service; it is not a deposit you can withdraw, and the firms write it that way in their own notices: The Prop Trade says its fees "are not deposits, do not represent client funds", and Xfunded that its own grant no "ownership, profit-sharing rights, or financial returns". What you get in return is access to an account with a stated balance and a rulebook.

  2. You trade against targets and limits

    A profit target to reach and, more to the point, two loss limits you must not cross: a daily one and an overall one. The overall limit may be static — always measured against the starting balance — or trailing, recalculated from the highest balance you have reached, and the difference between the two decides how much room you really have left after a good run.

  3. Pass the stage and you move to the next one, or to the funded account

    There are one-step programmes, two-step programmes and instant-access ones. The structure changes the price and the timescales but not the substance: in all of them, the thing measuring whether you complied is the firm's system, with its rules and its reading of them.

  4. The funded account is rarely what the name suggests

    This is the point most people treat as settled. In most programmes the "funded" account is still a simulated one, and the firms say so in their own footers. There are exceptions, and they are exceptions you can verify by reading. Who says what, with each firm quoted verbatim, is in the comparison of simulated environments and real money.

  5. You collect a share, following whatever procedure the contract sets

    It is not an automatic transfer: it has a frequency, minimums, deadlines and grounds for refusal, and all of that is written down. What you can check before paying is not the percentage on the landing page but that procedure, which is what decides whether the percentage ever gets applied at all.

What a prop firm is not

Four things people take for granted that the contract never says. None of the four is a hidden defect: the deal is simply a different one.

What people assumeWhat is actually there
A brokerIt is not
Who opens the account
The firm, on its platform
Custody of your money
None: there is no deposit
Execution of your orders
Inside its own environment

FundedNext writes it from the negative side in its own notice: it says it is not “a broker, dealer, exchange, or investment advisor” and does not accept or manage client deposits.

A jobIt is not
Relationship
Commercial contract, not employment
Fixed income
None
Who pays to get in
You do, with the fee

The classic trading desk did hire people and did put up the capital. That model exists and it is a different business; the resemblance is in the name, not in the deal.

Management of your capitalIt is not
Capital you put up
Only the fee
Who decides the trades
You, or the program you run
What is managed for you
Nothing

And it does not run the other way either: you are not managing the firm's money, because in a simulated environment none of its money is on the table. What is there is a promise to pay, subject to rules.

A securities account in your nameIt is not
Ownership
The firm's
Portability
None: it cannot be moved
What remains if it closes
Whatever the contract says

It is the most expensive of the four confusions, because expectations about guarantees and supervision follow from it and none of them hold. That is where knowing which protections never reach this relationship starts to matter.

The vocabulary you will meet

Six words that turn up on day one and are almost never explained. With these you can read a whole rulebook without a translator.

  1. Challenge, or evaluation

    The test you pay for. It may have one stage or two, with different targets in each, and some programmes replace it with instant access under stricter rules. It is literally what you are buying: the fee is for this and for nothing else.

  2. Drawdown, or maximum loss

    The loss limit that disqualifies you. There are two, and mixing them up is the most expensive mistake here: the daily one is measured within the session, the overall one across the account. The overall one may also climb with you — trailing — or sit still on the starting balance.

  3. Profit split

    The share of the result the contract assigns to you. It is the most advertised number and the least informative of them all, because without the payout procedure beside it — how often, on what basis, with what minimum — it says nothing about what you will actually receive.

  4. Payout

    The moment that share is requested and paid. It has a calendar, a minimum amount and conditions, and it is where you can see whether the rulebook was written to be complied with or to be interpreted.

  5. Consistency rule

    A cap on how much a single good day may weigh in the overall result. It exists to filter out anyone passing the test on one lucky bet, and it is the rule that most surprises traders coming from their own accounts, because it penalises exactly what would count as a good week anywhere else.

  6. Expert advisor, or EA

    What MetaTrader calls a program that trades on its own. It describes no adviser: it is the name of the product. Every firm sets its own limits on automated trading, and the only rulebook this site breaks down source by source is FTMO's, in the page on FTMO and expert advisors.

Those six words are enough to read any rulebook in the sector, which is the only thing that really answers "how does this firm work?". There are no common rules: there is the document of the firm you are about to trade with, in the version published on the day you read it.

And if you arrived here wondering where a bot fits into all this, the three firms this site works with and what the service includes are in how it works, and the system on sale, with what is and is not claimed about its results, in the trading system.

Sources · read on 31 August 2026

Frequently asked questions

What is the difference between a prop firm and a broker?
A broker opens an account in your name, holds the money you deposit and executes your orders in the market, and a prop firm does none of those three things. What you get here is an account the firm opens on its own platform, a fee you pay for an evaluation, and an undertaking to pay you a share of the result if you follow its rules. FundedNext writes it from the negative side in its own notice, where it says it is not a broker, dealer, exchange or investment advisor and does not accept or manage client deposits. The practical consequence is that the money you hand over is not a balance of yours to withdraw, but the price of a service.
Why do I have to pay to take the evaluation?
Because the evaluation is the product, not a formality on the way to something else. The firms say so in their own notices: The Prop Trade writes that its fees are not deposits and do not represent client funds, and Xfunded that its own are service fees granting no ownership, profit-sharing rights or financial returns. That means the payment is not refundable simply because you did not pass, and that the financial side of the relationship is settled at that first moment. What happens afterwards depends on the rulebook and on the payout procedure the firm has written down.
What is the difference between a one-step and a two-step evaluation?
How many times you have to demonstrate the same thing before reaching the funded account, and usually how tight the limits are as well. A one-step evaluation is passed in a single run and tends to come with narrower loss margins or with a drawdown that trails your balance upwards; a two-step one splits the target across two rounds with slightly wider limits and, in exchange, takes longer. There are also instant-access programmes with no prior stage and stricter rules from the outset. None of the three structures changes the substance: the thing measuring whether you complied is the firm's system, with its rules and its reading of them.
What is drawdown, and why does it disqualify you before the account is gone?
It is the loss limit the firm sets by contract, and there are two different ones: a daily limit measured within the session, and an overall limit measured across the account. It disqualifies you before the balance runs out because it is not there to prevent ruin, but to cap how much risk the firm is willing to carry. The detail most people miss is that the overall limit may be static, always measured against the starting balance, or trailing, recalculated from the highest balance you have reached. With a trailing limit, every good run lifts the floor and leaves you less room underneath exactly when things looked comfortable.
What is a consistency rule?
A cap on how much a single good day may weigh in the overall result of the evaluation. It exists to filter out anyone passing on one lucky bet rather than on repeatable trading, which is what the firm is trying to measure. It is the rule that most surprises traders coming from their own accounts, because it penalises exactly what would count as a good week anywhere else. Not every firm applies it or defines it the same way, so it is one of the specific things worth reading in the rulebook before paying.
How does this compare with a traditional trading desk?
The name is shared and not much else. The classic activity is defined in law: article 4(1)(6) of MiFID II calls dealing on own account trading against proprietary capital resulting in transactions in financial instruments, and Spain's Ley 6/2023 lists it among the investment services reserved to authorised firms. That describes a desk risking the house's money, with employees and with authorisation. A prop firm does not execute orders for you, does not hold your money and does not recommend trades to you, so it is not carrying out that activity with you and does not need that authorisation: the resemblance is in the word, not in the deal.

Before you automate, compatibility

If the mechanics of the account are clear, the next question is how a system gets installed on top without breaking its rulebook. That is written out step by step, and compatibility is confirmed before anything is charged.

See how the installation works

Continue reading

Three more guides on this, or on what sits next to it.