Prop firms generate revenue through challenge fees, profit-sharing, and by monetizing demo trading.
Unlike brokers, they don’t rely solely on spreads—instead, they charge traders to access capital through an evaluation process or an instant-funded account.
Since most traders fail challenges due to poor risk management, upfront fees are a major income source.
For those who pass, prop firms continue earning through profit splits, spreads, and hidden costs. Some firms don’t place real trades at all, instead profiting from trader losses in simulated accounts.
- Challenge Fees: One-time or recurring fees for evaluation attempts.
- Monthly Subscriptions: Some firms charge ongoing fees instead of a single challenge fee.
- Profit Splits: Taking 10%-30% of a funded trader’s earnings.
- Spreads & Commissions: Markups on spreads or per-trade fees.
- Hidden Costs: Data feeds, platform fees, and account resets.
- Educational Services: Selling courses, mentorship, and memberships.
- Non-Real Market Execution: Some firms keep trader losses from simulated accounts instead of placing real trades.
The Prop Firm Challenge Model
The challenge model is an evaluation process where traders prove they can trade profitably and manage risk using a demo account. Challenges have strict profit targets and risk limits, testing trading skills, consistency, and discipline.
Traders who pass receive a funded account, which can be either a demo account with simulated capital or a live account with real market execution.
Some prop firms also offer instant funding accounts, where traders skip the evaluation by paying a higher upfront fee.
Fees from Challenge Accounts
The primary way prop trading firms generate revenue is through challenge fees.
Unlike traditional CFD brokers, where traders deposit funds into a personal trading account, prop firms require traders to prove their abilities before accessing capital.
How Much Do Prop Firms Make From Challenges?
Prop firms make most of their money from challenge fees, with traders paying anywhere from $40 for a $5K account to $3,000 for accounts between $200K and $500K.
Some firms also charge monthly subscription fees instead of one-time challenges.
Because most traders fail challenges due to poor risk management, these fees are often the primary income source for many firms. Some rely almost entirely on challenge fees and subscriptions, rather than profit splits from successful traders.
The Profit Split Model for Funded Accounts
Once a trader passes the evaluation—or purchases an instant funding account—they gain access to a funded account where they can trade using the firm’s capital.
Instead of keeping 100% of their profits, traders enter a profit-sharing agreement, where the firm takes a percentage in exchange for providing capital and covering potential losses.
After challenge fees, profit splits are the second largest revenue stream for most prop firms.
What Percentage Do Prop Firms Take?
Most prop firms take between 10% and 30% of a trader’s profits, meaning traders keep 70% – 90% of their earnings. However, some futures prop firms offer different models, such as keeping 100% of the first $10,000 before adjusting the split to 80%-95%.
Financial Markets and Spreads
Spreads and commission fees can be another revenue stream for prop trading firms, especially if they offer live market trading after evaluation.
By marking up spreads or charging per-trade commissions, prop firms profit from every trade placed—just like traditional brokers.
However, not all prop firms execute real trades, even after a trader is funded. Some firms operate purely on simulated accounts, meaning no actual money is risked in the market. These firms still charge spreads and commissions, but instead of sending trades to the market, they keep trader losses as additional revenue.
What Happens if You Lose Money?
If a trader exceeds the daily or overall loss limits during the challenge, they instantly fail and must start again—paying for a new challenge or “reset” fee.
At the funded stage, breaking risk rules results in losing the trading account, meaning the trader must go through the evaluation process again if they want another chance.
Hidden Costs and Pitfalls of Prop Trading
Beyond challenge fees, traders often face additional costs that reduce profits. These can include:
- Platform Subscription Fees: Some firms charge traders monthly fees for access to trading platforms.
- Data Feed Costs: Live market data access may require extra payment.
- Reset Fees: If a trader fails, they may need to pay to retake the challenge.
- Commission Markups: Some firms widen spreads or increase commission costs on trades.
How Do You Choose the Best Forex Prop Firm?
The best prop firms offer reliable payouts, low fees, and fair trading rules. The leading prop firm comparison site PropFirms helps traders compare top firms based on:
- First-hand trader experience and payout proof
- Available trading instruments and leverage options.
- Supported trading platforms and risk management tools.
- Challenge rules, including news and copy trading restrictions.
- Prop trading costs and hidden fees.
- Whether funded accounts are real or simulated capital.
- Customer support availability and educational resources.
- The prop firm’s reputation and trustworthiness.
- Independent vs broker-backed prop firms.
- Exclusive discount codes to reduce fees.
Is Prop Trading Only for Professional Traders?
In the past, proprietary trading was limited to financial institutions and professional traders, but modern prop firms have opened the industry to retail traders.
However, only a small percentage of traders reach the funded stage due to strict evaluation rules and risk limits. Those who succeed gain access to significant capital with minimal personal financial risk.
So, Is a Prop firm a Profitable Business?
Yes, prop trading firms are highly profitable, as they make money regardless of whether a trader wins or loses.
Prop firms’ revenue comes from challenge fees, profit splits, trading costs, and hidden fees, with many firms generating most of their income from traders who fail evaluations.
While most traders struggle due to poor risk management, those who succeed gain access to firm capital without risking their own money.
As the industry grows, prop firms will continue refining their business models, balancing trader success with sustainable profit generation.
