Lesson 1 | What is a prop firm? From evaluation to payouts

Start with the questions on your mind

Seeing someone pass an evaluation, trade a $100,000 account and share a payout raises two questions: why does a company offer this opportunity, and can you start simply by paying a fee?

This lesson separates evaluation fees, account sizes and payouts, laying the groundwork for the next four lessons.

What prop trading means—and how online evaluations fit in

Prop firm is short for proprietary trading firm. In the traditional model, a company trades its own capital and compensates traders under employment or partnership arrangements.

Online evaluations are an assessment service: you pay to participate, meet targets within specified rules, and become eligible for rewards under an agreement. This lesson focuses on forex and contracts for difference (CFD) programs.

A funded account does not necessarily contain live capital. For example, FTMO’s CFD evaluations and funded accounts use simulated funds, while eligible performance can earn real rewards. Check which arrangement you are joining.

What does the evaluation fee actually buy?

An evaluation fee pays for an assessment service. The terms define the account size, platform and tools; payment alone does not qualify you for a payout.

Fee refunds have conditions: do you qualify after passing, or after a first eligible payout? Models from the same firm can differ.

Check three costs before buying:

• Initial fees: the evaluation price and any checkout charges.
• Later fees: any retake, reset, activation, subscription or data charges.
• Refund terms: which model qualifies and what you must complete.

At a hypothetical US$400 per attempt, three purchases cost US$1,200 before other charges. Count the whole series of attempts.

From choosing a program to receiving a payout

A 2-Step evaluation typically has six parts:

• Choose a program: check regional eligibility, platform, size and trading restrictions.
• Stage one: meet the profit target while respecting risk and trading-day requirements.
• Stage two: complete the next set of targets and limits.
• Review and verification: have your trading record checked and complete identification and contract requirements.
• Funded account: continue trading, noting any rules that differ from evaluation stages.
• Request a payout: meet the withdrawal conditions, then complete review and payment procedures.

1-Step, 2-Step and 3-Step describe the number of evaluation stages. Instant funding generally skips the preliminary evaluation. Fewer stages do not mean fewer restrictions; Lesson 3 compares these models.

A $100,000 account: three different numbers to understand

Imagine a US$400 fee, a US$100,000 nominal account and a 10% initial maximum loss limit. This is a teaching example, not a current product.

• US$400: the evaluation fee you actually pay.
• US$100,000: the nominal account size, not cash you own.
• US$10,000: the initial loss allowance—US$100,000 × 10%. With a fixed floor, the initial floor is US$90,000.

The loss allowance cannot be withdrawn and may also be constrained by a daily limit. Check whether unrealized losses, commissions and overnight charges count.

A planned US$500 risk per trade is 0.5% of the nominal account, but 5% of its initial loss allowance. This illustrates scale, not a recommended risk level.

Whether the loss floor rises with profits also affects the room available. Lesson 4 works through static and trailing drawdown with numbers.

How can simulated trading produce a real payout?

A simulated account measures trading performance; the company pays rewards under its agreement. You receive an eligible payment, rather than withdrawing the simulated principal.

At a hypothetical 80% profit split, US$1,000 of eligible profit produces US$800 before applicable fees and taxes. Withdrawal timing still depends on payout windows, minimum requirements and review.

Evaluation fees are a visible revenue source, but a firm’s financial position requires reliable disclosure. Popularity, discounts and payout screenshots cannot independently prove its ability to keep paying.

Why do traders consider this route?

For a trader with an established method but limited capital, prop trading offers another arrangement: pay for the service, demonstrate performance within its rules and qualify for rewards.

The trade-offs include less trading flexibility and potentially accumulating retake fees. You also face service changes, review disputes, delayed payments and the possibility of a firm closing.

Rules do not create a trading edge. Whether the account allows your holding periods and trading sessions says more about fit than price alone.

Before your first evaluation, answer these four questions

Use your trading records to outline four areas:

• Method: can you write down entry, exit and stop-trading conditions?
• Rules: would your past daily, consecutive and unrealized losses breach the model’s limits?
• Cost: what is your total attempt budget, and when would you buy again after failing?
• Eligibility: do your location and identity qualify? Do holding, automated trading, copy trading and payout rules fit?

If records are limited, practise in a simulated environment or a firm’s trial service, checking its terms. Records cannot guarantee future results, but can expose a poor fit; Lesson 5 develops this step.

From understanding the model to making a choice

With the process clear, the next step is to consider your own trading needs.

Remember: evaluation fees pay for a service, account size is not your own capital, and payouts require you to meet the conditions.

These distinctions shape how you weigh cost, risk and trading freedom.

Next lesson: compare prop trading with trading your own capital to understand which arrangement fits you.