US prop trading firms make money either by trading company capital or by charging traders for access to evaluation programs. Updated:
The account labels used by online firms may show $50,000, $100,000 or $150,000. Those figures do not necessarily represent cash held in a brokerage account for the trader.
The term "prop firm" covers two different businesses:
- Traditional proprietary trading firms use company capital to earn trading profits, market-making spreads, arbitrage returns and liquidity incentives.
- Online funded-trader firms usually earn money from evaluation fees, subscriptions, resets and other trader payments. They may pay rewards to qualifying traders and selectively deploy capital in live markets.
Topstep and Apex both state that their evaluation or performance accounts use simulated trading rather than live market capital.
The Two US Prop Firm Business Models
| Type of firm | Main source of income | Is the trader using real capital? |
|---|---|---|
| Traditional proprietary trading firm | Trading profits, market-making spreads, arbitrage and liquidity incentives | Usually yes, using company capital |
| Online funded-trader firm | Evaluation fees, subscriptions, resets, payout economics and sometimes live trading | Often no during the evaluation and early funded stages |
The SEC's definition of a proprietary trading firm focuses on a business trading its own capital through its own accounts without customers. That differs from an online evaluation company that sells access to simulated trading programs.
How Do Online Funded-Trader Firms Make Money?
Online funded-trader firms usually make money through trader fees, the difference between total fees and rewards paid, and related services. Some also use performance data to identify traders or strategies for possible live trading.
Evaluation and Subscription Fees
The most visible revenue source is the payment a trader makes to enter an evaluation, challenge or trading combine.
Depending on the provider, the payment may be:
- A one-time evaluation fee
- A monthly subscription
- A reset fee after breaching the rules
- An activation or platform fee
- A market-data or software fee
- A fee for purchasing additional accounts
Apex's user agreement describes evaluation and performance accounts as simulated accounts with subscription or one-time fees. It also says that resetting an evaluation account can incur a separate fee and that fees are non-refundable.
The firm does not need every trader to pass. A trader who fails an evaluation, breaches a drawdown rule or stops paying for access may still generate revenue without creating a payout liability.
Simulated Losses Do Not Equal Live-Market Losses
In many programs, the displayed account balance is synthetic or simulated.
Apex says its accounts use synthetic simulated currency and that users do not trade with real funds. Topstep's terms similarly state that trades in its challenge and Express Funded Accounts are not made in live markets and do not create actual trading profits or losses for the account.
If a trader loses $5,000 in a simulated account, the firm generally does not lose $5,000 in the market. The firm may close the account under its rules while retaining the relevant fee.
The account label, therefore, should not be treated as proof that the firm deposited that amount with a broker on the trader's behalf.
Payout Economics
A successful trader may receive real cash rewards even when the trading account is simulated.
Topstep, for example, advertises a 90/10 payout arrangement in which the trader keeps 90% of eligible profits and Topstep keeps 10%, subject to its payout rules and limits.
A simulated-account profit split is not necessarily a division of profits produced by the same live brokerage account. It may be a contractual reward based on simulated performance.
MyFundedFutures describes this structure directly. Its sim-funded account uses real-time market data, but no real capital is deployed. Eligible payouts come from the firm's operating funds, and the firm decides whether strong performers receive an invitation to trade live capital.
Trading Data and Strategy Selection
Some firms also use trading data from evaluations to assess traders and strategies.
Apex's user agreement says the company may monitor, analyse, copy or otherwise use simulated trading activity for risk management, research, strategy development or possible live-market execution using company capital. The agreement also says the trader is not automatically entitled to compensation based on that use.
This may allow a firm to:
- Review trading behaviour and performance
- Identify traders with repeatable risk-adjusted results
- Copy selected strategies
- Invite certain traders to live accounts
- Control the capital and risk assigned to those strategies
This opportunity is not automatic. Topstep's agreement states that passing its requirements does not automatically entitle a trader to live trading or a live funded account.
Platforms, Data and Related Services
Some firms also earn revenue through services connected to the trading program, including:
- Trading-platform access
- Real-time market data
- Analytics
- Education
- Trading journals
- Account resets
- Software and support
FTMO says its challenge fee supports the simulated environment, platform infrastructure, analytics applications and other trader tools. Its fee structure also shows that refund policies can differ between products.
Private funded-trader firms generally do not publish enough financial information to show what percentage of revenue comes from fees, payouts or live trading.
How Does the Economics Work?
Consider this illustrative example, not an industry average:
| Item | Amount |
|---|---|
| 1,000 evaluations at $100 | $100,000 revenue |
| Trader rewards paid | -$25,000 |
| Data, platform and payment costs | -$15,000 |
| Remaining amount before staff, marketing and taxes | $60,000 |
The firm's result depends on several variables:
- How many traders purchase evaluations
- How many pass
- How much successful traders withdraw
- Whether payouts are capped
- How often traders reset or repurchase accounts
- Technology and market-data costs
- Marketing and affiliate commissions
- Chargebacks, fraud and customer support
- Losses from live trading activity
A firm may therefore remain profitable while paying substantial rewards if its fee revenue and other income exceed rewards and operating costs.
How Do Traditional Proprietary Trading Firms Make Money?
Traditional US proprietary trading firms generally make money by trading company capital rather than selling retail challenge accounts.
Trading Profits
A firm may take positions using its own capital and seek returns from:
- Short-term directional trading
- Statistical arbitrage
- Relative-value strategies
- Options trading
- Futures trading
- Cross-market arbitrage
- Event-driven strategies
The firm keeps the trading profits after paying trader compensation, technology costs, exchange fees and other expenses.
Market-Making Spreads
Market makers quote buy and sell prices. They may earn the difference between the price at which they buy and the price at which they sell.
The SEC says market-making revenue may come from capturing bid-ask spreads and receiving incentives from trading venues for providing liquidity.
Jane Street, Citadel Securities and other large market-making businesses are examples of firms whose activities can include providing liquidity and earning spread-related revenue. Their business structures are more complex than those of a typical retail-funded trading website.
Exchange and Liquidity Incentives
Some venues pay incentives or rebates to firms that provide liquidity. High-volume trading firms may also reduce average transaction costs through scale, technology and direct market access.
These benefits carry risk. A market maker can lose money when prices move against its inventory, systems fail or risk controls do not work as intended.
What Does "Funded" Really Mean?
"Funded" can describe several different arrangements:
- Simulated evaluation: You trade in a demo environment under profit targets and drawdown limits.
- Simulated funded account: You may qualify for real cash rewards, but the trading remains simulated.
- Live account: Your trades are placed in a real brokerage or exchange account using firm capital.
- Reward-only program: You may earn a payment based on performance, but there is no promise of live capital.
The contract, payout policy and risk disclosure provide the answer. The account size alone does not.
What Should You Check Before Joining a US Prop Firm?
Review these points before paying an evaluation fee:
- Is trading simulated or live?
- Is the fee recurring?
- Are resets, activation or data charged separately?
- How is drawdown calculated?
- Is the drawdown static or trailing?
- Are payouts capped?
- Are there consistency rules or minimum trading days?
- Can the firm deny a payout under discretionary terms?
- Does passing guarantee a live account?
- Who provides the brokerage and market data?
- Is the company a broker, futures commission merchant or registered dealer?
The CFTC advises traders to check registration and disciplinary history through the NFA BASIC system when dealing with firms involved in futures, forex or other derivatives. The CFTC also warns that unregistered entities may provide fewer protections and that promises of easy profits are a warning sign.
Bottom Line
The account label is not enough to explain how a prop firm operates. Read the agreement to determine whether your trades are live, how payouts are calculated and whether passing the evaluation creates any obligation to provide live capital.