TradingIntermediate#Institutional#Funding
Prop Firm (Proprietary Trading Firm)
P
Definition
A company that provides traders with capital to trade in exchange for a profit split, usually after passing a challenge.
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Concept Diagram
Key Takeaways
1
Prop firms provide traders with firm capital to trade in exchange for a profit split
2
Traders must pass evaluation challenges proving consistent profitability and risk management
3
Typical splits range from 70-90% of profits going to the trader with no personal capital at risk
4
Risk rules include daily loss limits, maximum drawdown, and position size restrictions
Practical Example
You pass a prop firm evaluation and receive a $100K trading account. You keep 80% of profits ($8K on a 10% return) while risking zero personal capital. Your only risk is losing the $500 evaluation fee.
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Related Terms
Trading
A-Book vs B-BookA-Book brokers pass trades to external liquidity; B-Book brokers take the opposite side of the client's trade.
Trading
Wash TradingA form of market manipulation where an entity simultaneously buys and sells the same asset to create fake volume/activity.
Trading
ArbitrageThe simultaneous purchase and sale of an asset in different markets to exploit price inefficiencies for profit.
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LiquidationThe forced closing of a leveraged position by an exchange when the user's collateral is no longer sufficient to cover the potential losses.
Market Structure
Wash TradingThe illegal practice of trading with oneself to create fake volume and artificial price movement, misleading other traders about real market demand.
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