Complete Prop Firm Trading Guide for Beginners (Step-by-Step)
Before doing anything else, just read the 1 section below this. You’ll see why.
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Below is the most important thing you’ll ever see about prop firms.
PURELY HYPOTHETICAL MATHEMATICAL MODEL — NOT A TRADING STRATEGY, PERFORMANCE CLAIM, OR RECOMMENDATION
If you only read this for what it literally says and without truly thinking about the overall lessons, then you will miss out on the most important prop-firm-related lesson you’ll ever see.
1️⃣ A trader buys 100 50k evaluations for $90 each, which costs $9,000. The account/evaluation has a $2,000 max loss and a $3,000 profit target with a 50% consistency rule. They take a trade with a $2,000 stop loss and $1,500 profit target. The break-even win rate for this risk/reward ratio is 57.14%. For purposes of this simplified model, we assume a 57.14% probability of winning each trade. Winning twice in a row would therefore have a probability of 32.65%.
2️⃣ The trader takes 1 trade on day 1 and 1 trade on day 2. For purposes of this simplified model, we assume each evaluation either fails or reaches the funded stage after these two trades. Out of 100 evaluation accounts, approximately 32 would become funded accounts. You need to do the rest of the math from here.
3️⃣ The purpose of this is to teach the importance of non-trading-strategy-related factors. You won’t learn if you skip over this without thinking about it for a few minutes.
Do not actually do this. Read the actual lessons and warnings about this below.
This is a purely hypothetical mathematical model. Actual results will vary materially and may be substantially worse. This example is not a recommendation to purchase evaluations, trade futures, or use any particular prop firm. It is presented solely to illustrate how evaluation fees, payout rules, and account structures can create asymmetric outcomes. The entire purpose of sharing this is to educate you about prop firms and what the asymmetric outcomes mean. For example, are you currently passing around 1/3rd of your evaluations? How does your personal funding and payout plan compare? What does this mean for risk management and trade sizing in relation to what you're currently doing? Think about the lessons here on risk management and trading size. Are you properly accounting for this in the way you approach firms? The purpose of sharing this isn't for you to do what's written here, it's to get you thinking about certain aspects that you may have been overlooking. Run your own numbers, simulate trials, calculate your own numbers, and do not follow what's written here expecting to make guaranteed money. You may lose money by doing this.
A comparison of the cheapest/easiest prop firms are listed here.
NEVER spend or risk money you can’t afford to lose. SIM TRADE FOR FREE HERE.
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Prop firms are an incredible opportunity for experienced traders but a money pit for beginners. Please read this guide closely, and join the free prop firm Discord. To practice sim trading for free, go here. DO NOT use prop firms until you’re ready. There is nothing more I can do than make that clear. Would you pay $100 to join a golf competition without knowing how to golf if there was a chance you could win $1,000? Probably not, right? Never trade with money you can’t afford to lose, and never buy evaluations with money you can’t afford to lose. You need to understand your pass rates and probability of payouts before using firms. And, even then, you need to understand that there are pros and cons to using prop firms versus live accounts. They are absolutely NOT the same thing. After this guide, you can decide which path to take. Always do what’s best for YOU.
For Beginners: The Funding Process and Passing Evaluations
If you’re new to firms and need to understand the evaluation to funding process, read the example here. If you already know this, then skip ahead. Cheapest firms here.
Purchasing an evaluation - After buying an account, you will receive login and account setup instructions for whichever trading platform you chose.
Objectives - In the chart next to this, you’ll see that your profit target is $3,000 and the maximum loss limit is $2,000. You pass the evaluation when you hit the profit target. If you fail the account and want to try again, you can either pay to reset it or just buy a new account.
Following the rules - a 50% consistency rule means you can pass in as little as 2 days and that 1 single day of profit can’t be over 50% of the total profit. Let’s say you make $1,480 on day 1, and on day 2 you make $1,520. Your total profit is $3,000, so you’d pass. Firms allow a small bit of leniency for following the 50% rule.
Funded account - Passing means you’ll start on a new funded account. This account is where you’re eligible to withdraw the profits you make.
| Parameter EXAMPLES | 50K ACCOUNT EXAMPLE |
|---|---|
| Profit Target | $3,000 |
| Maximum Loss Limit | $2,000 |
| Daily Loss Limit | NONE |
| Price | $90 |
| Max Contracts | 3 minis |
| Consistency | 50% (Eval only) |
| Qualification for Payouts | 5 winning days of $150, and minimum payout is $500 |
| Withdrawal Limit | Maximum payout per request is $1,500. After 5 payouts, you are given a live account. |
If you’re smart about it, there is money to be made from prop firms.
I know there is a lot of text here, but this is the most important part.
Analyze and think about the rules and parameters of an account in relation to those consistency and minimum trading day rules. No, seriously… really think about it.
During this WORK, you might make important observations like the following:
Prop firms allow short-term edges to be exploited in a way that personal accounts wouldn’t due to the structure of how firms operate*
*meaning paying $90 for a $2,000 account and how that cost vs funding-capital gap creates an opportunity for funded-payouts to offset evaluation costs.
Prop firms are not the same as a personal account, so your plan should match the specifics of prop-trading environments
Trading through prop firms should be treated like a business with evaluations as expenses and payouts as income
But here’s the big one:
Position sizing and the overall risk and profit target of your trades in relation to the evaluation’s allowed rules (particularly the consistency rule) is just as important as the actual trading strategy. Run some numbers and experiment on a sim account with different position sizes. If it helps, think of this experiment in terms of levels of aggression, like whether you should try to 1) pass in 2 days with the maximum allowed contracts, or if you should 2) stick to small position sizing and risk management, possibly taking a month or longer to pass the evaluation.
When it comes to your trading strategy and approach, there are a few possibilities:
It works with firms but doesn’t work long-term on a personal account
It works with firms and works on a personal account
It doesn’t work with firms but does work on a personal account
It doesn’t work on ANYTHING but that’s okay because you’re still learning on a free sim account like the responsible and smart person you are
So, how exactly are you going to get where you want to be?
All that matters is making money, and all I’m saying is to do some math and modeling to figure out what’s required to achieve that. If you go into this without an actual trading model and plan, you’re going to lose money. Don’t be that person. Depending on what you do, prop firms will either be more difficult or easier than a personal trading account, and it’s up to you to determine why that is (and how to take advantage of it). Again, there is money to be made here. I’m not expanding further on that, but this brief section is the direction you need to be pointed towards to beat firms. The work is now up to you, which most people aren’t willing to do. As usual with my website and everything that I do on YouTube, I can only point you in the right direction. I’ve seen people with hundreds of thousands in profit from firms (after costs), and I’ve seen people who have spent thousands without any payouts. The failure and success rate is probably no different with firms than it is with personal trading accounts.
I documented my entire trading journey for years and recently turned that into my most comprehensive trading guide (the most important video I’ll ever make) - Here is a link if you want to see that. You’ll learn how to experiment as a beginner, make the first draft of a trading strategy, experiment and test ideas, and then finally execute the final version of your system.
The video version of this guide on prop firms has a section starting at 9:54 that goes even more into your trading strategy, risk management, position sizing, and more. I recommend watching that part. The rest of the video is just the shortened version of what’s on this website, but it doesn’t contain as much information.
PROP-FIRM FREQUENTLY ASKED QUESTIONS
I recommend reading everything on this site if you are new to firms. I haven’t put anything here that isn’t necessary.FIRM FREQUENTLY ASKED QUESTIONS
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If the max drawdown is $2,500, then the account is failed the moment you lose $2,500. However, most firms use 1 of 2 types of drawdown systems that move up as your account grows, which are also referred to as trailing thresholds. No, they don’t follow you forever; they generally stop at the account’s starting balance.
Intraday
An intraday trailing drawdown trails the account’s highest unrealized balance, so this includes trades that haven’t been closed yet. This is terrible.
End-of-day (EOD)
An EOD drawdown is only calculated once the market has closed for the day. This is great.
To easily understand this, let’s say it’s day 1 of a new evaluation on a 50k account with a $2,500 max drawdown. Your first trade is $1,000 into profit at one point, and you close it later for a $500 win. You only take that trade. So, your account balance would obviously go from $50,000 to $50,500.
Intraday account
The minimum account balance would move up by $1,000, because that is $2,500 away from the highest unrealized account balance.
The max drawdown went from $47,500 to $48,500
EOD account
The minimum account balance would move up by only $500, because that is $2,500 away from the account balance at the end of the trading day.
The max drawdown went from $47,500 to $48,000
The drawdown systems differ in the time that they choose to calculate any adjustments. For intraday, it’s always active, whereas EOD is only calculated when the day is finished. For both, the max drawdown only moves up when the account balance hits a new high. So, if you lose money and then have profitable days after, the max drawdown won’t move until the account balance surpasses its previous highest value.
If you are still confused, I made a dedicated Drawdown Guide with helpful visuals and more info.
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Consistency Rule
A 40% consistency rule means that one single day’s profit can’t be over 40% of the total profit. Here’s a simple demonstration to understand how it works:
Day 1; +$300
Day 2; +$500
Day 3; +$200
Total profit = +$1,000
Biggest single day of profit = $500
Right now, you are not meeting the 40% consistency rule because your biggest single day of profit ($500) is 50% of the total profit. In order to follow the 40% consistency rule, the account balance would need to increase until $500 equals 40% of the total profit. For the people like me who shut down when boring math starts, just pay attention to this; divide your biggest day of profit by .4 to determine the total profit needed. In this instance, that means the account balance needs to be $1,250 for you to request a payout. Of course, understanding this rule before you get funded means that you will be planning ahead. Don’t have a massive day of earnings if that’s not how you normally trade.
Minimum Trading days
It’s as simple as it sounds; it’s just the minimum amount of trading days required to either pass an evaluation or take a payout from a funded account. Firms differ on how they use this rule, and some don’t have it at all.
News Events
Use a free site like Forexfactory.com to be aware of when there are high-impact and scheduled news events. When this happens, your entire account could be wiped out in less than a second. That’s why all firms specify what their rules are for these events. Sometimes, the rules are different depending on which account you use.
Scaling Rule
The scaling rule/plan means that you start your funded account without access to the same amount of contracts you could trade in the evaluation. As you grow/scale your account, you gain access to higher contract size. Again; as your account gets larger from profits, you can start trading with more contracts. This rule is used by many firms.
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Prop firms will never offer the same freedom that a personal account does, but that’s not really their appeal — check out this example:
Prop firm: pay $100 for a $2,500 trading account
Max amount you can lose: $100 (the cost of the evaluation)
Personal account: deposit $2,500 into a trading account
Max amount you can lose: $2,500 (or more than your initial deposit if you’re really talented)
In this example of the total cost being $100 total, you’ve essentially got 25 attempts to pass before you would’ve been better off depositing $2,500 into your own personal account. Then again, if you fail 25 times, then you probably weren’t ready, and at least you learned something in all of that time instead of losing that all with a live account on day 1. Failing 25 evaluations that have a max drawdown (and therefore true account size) of $2,500 means losing the equivalent of $62,500 (lol). So, keep this math in mind. It’s important to be analytical. Yes, prop firms make money off of failed traders who start purchasing evaluations before they’re ready. I was a fool and started too early, but now I get payouts - the learning I did to get to where I am now could’ve been done on a sim account. Please do that. If prop firms getting most of their revenue from that is upsetting, then make sure you bring that same energy to the billion-dollar CFD space where you’re trading against your broker (where they make money if their traders fail).
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Easy answer. I paid $77 for a 50k account evaluation, passed it, made $5,000 on that account, and now that’s in my bank account. Instead of dealing with the pressure of trading a personal brokerage account and watching a position move up and down $100 every 5 seconds, I can trade risk-free knowing that it’s on the firm if I lose. The reduction of that stress allows me to execute my system without as much hesitation. If I make money, then I get to keep 90% of it. Do I pass every evaluation? Of course not. Do I get payouts on every funded account? Of course not. However….
I would have to fail a prop firm account TWENTY SIX times with 0 payouts to spend the equivalent of losing just 1 $2,000 deposit into a personal brokerage account. That is the true “leverage” and appeal of a prop firm. That is why they are an incredible opportunity (ONLY once you’re ready). But what about all the rules that make it hard to get your payouts? The ones I use don’t have difficult rules. For me personally, prop firms remove a significant amount of pressure and allow me to trade position sizes that create meaningful returns (rather than being limited to 1 micro contract on a personal account). It’s an easy choice for me, but decide for yourself.
LESS PRESSURE
It’s easier to trade meaningful size when the money being risked isn’t yours.
MONEY AND RISK
Since the only costs from you are paying to take the evaluation, you can’t lose anything beyond that.
CHEAP ACCESS TO MORE CAPITAL
Paying $90 for what is essentially a $2,000 trading account is a great opportunity, even if it takes a few tries to get funded.
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Unless the prop firm specified that evaluations are a 1-time purchase, most prop firms use a subscription model. Here’s how that works:
You purchase an evaluation on the 10th of the month:
If you pass before the 10th of the next month, you will pay nothing more and that passed evaluation is over
If you’re still trading the account by the 10th of the next month, you get billed again on that date
If you fail the account
You can pay a fee to reset it and try again
You can wait until the 10th of the next month, because it will be reset for “free” when you get billed again
You can choose to cancel that account to avoid the next month’s subscription
You have to cancel the account if you don’t want it to be renewed on the next month (if you passed the evaluation, there will be no more charges on that account though). There is no subscription or payment for funded traders (as long as you don’t choose a firm with an activation fee — best firms here). After you pass an evaluation, you are then put on a new funded account.
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Trading platform
You will pick which platform you’d like to trade through during the checkout process of buying an evaluation. The available trading software to pick from will be visible during this, but you can also check their website to see what they have for options. The firm will give you all necessary instructions for logging in (they’ll give you the username and password details). It might take some time for the login information to work, since the account has to be created for you. However, from my experience, it typically only takes a couple minutes.
Market data
As for market data, this is included in the price of the evaluation. However, if you want level 2 market data, then this is usually an add-on that you’ll need to pay for. If you end up reaching a live account through the firm, you’ll legally become a “professional” trader, and you’ll be required to pay professional market data rates. The firm typically has YOU pay for that.
“Funded sim” and what’s next
When you become a funded trader, you’re almost always put on what’s called a “funded-sim account”. You start on a simulation account, and then you’ll be put on a live account if you do well. Yes, you can get payouts during the funded-sim stage. The path to a live account is extremely clear at the reputable firms. They’ll tell you exactly how much money you can make before being transferred to a live account.
Futures instrument list
As for what you can trade through futures firms, it typically includes all of the major and popular exchanges - CME, COMEX, CBOT, and NYMEX. But, make sure to confirm that with the firm you’re looking at.
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Legally, I’m not allowed to give advice, but I’m familiar with how this all works and can cover general information for most situations.
Unless otherwise stated, you’re not employed by the prop firm when you’re trading. You’re a sole proprietor, and you’ll get a 1099-NEC tax form of your payouts at the end of the year.
MOST OF THE TIME, your income from firms is treated as self-employment income, and you are responsible for paying taxes on it. Depending on how much you make and your situation, you might need to do quarterly estimated tax payments if your income is substantial. This might not apply to you, so consult with a tax professional to be sure.
Trading through prop firms loses the benefit of 60/40 tax treatment on futures gains. In a personal account, 60% of gains from futures trading are taxed at the long-term capital gains rate. That saves money if you’re making large returns. The other 40% is taxed at the short-term capital gains rate (whichever income bracket you’re in). This doesn’t make a huge difference until you start making a substantial amount. So, keep that in mind.
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Futures prop firms in the US are bound by regulations to not allow traders from certain countries to join. They do not personally make the decision on which countries to allow. Please check the firm’s website/FAQ to see if they support your country. Do not try to use a VPN to bypass these rules.
Join the free Prop Firm Center Discord for up-to-date sales, free account giveaways, and a great community of prop traders.
What are the best prop firm companies and the best trading accounts?
That depends on what you’re looking for — return potential, less rules, easy policies, or low prices? All of these factors influence the pricing of an account, and this page here makes it easy to choose. It also ranks the the best firms in the industry.
Which trading account size is best; 25k, 50k, 100k, or 150k?
Smaller accounts are easier to pass than larger accounts because of something called the drawdown to profit target ratio. For example, a 50k account often has a max drawdown of $2,000 and a profit target of $3,000. That ratio is 2:3. Meanwhile, a 150k account often has a max drawdown of $4,500 and a profit target of $9,000. That ratio is 2:4. Relative to the max drawdown and true account size, larger accounts often have higher profit targets. Only experienced traders should use larger accounts. The smaller the account, typically the easier it is to pass.
How do you know when you’re ready to start using prop firms?
Before using prop firms, practice on a sim account. You can get started for free with the trading platform I’ve used and recommended since 2021 by going HERE. When you “pass” an account/evaluation, start over and pretend that it’s a funded account. Repeat that process. This crucial part of designing and preparing your approach can be done for free. Remember what we talked about in the previous sections about your trading model and what’s required to beat prop firms. You should have at least a rough idea of your expected pass rate and your probability of making it to a payout.
