Prop trading firms and "funded accounts" – what Europeans should know

Retail proprietary trading firms ("prop firms") sell evaluations: you pay a fee, trade a simulated account under strict rules, and if you pass you get a "funded account" and a share of any profits. They have become hugely popular. They are also very different from a broker or a traditional prop desk.

#How the model works

1. You pay a challenge fee, typically from a few tens to several hundred euro depending on the account size.
2. You must hit a profit target (for example 8–10%) without breaching a maximum daily loss and total drawdown.
3. If you pass, you trade a funded account – often still simulated – and receive a profit share, commonly 70–90%.

For many firms, most revenue comes from challenge fees, because most participants fail. Payouts to successful traders are funded partly by those fees.

#Regulation – or its absence

Most retail prop firms say they provide an evaluation service on simulated accounts and are not authorised investment firms. That means:

• no MiFID II client protections, no compensation scheme and no financial ombudsman;
• rules and payout terms can change, and disputes are contractual;
• some firms have closed suddenly or had their platform access withdrawn, leaving traders with unpaid profits or unused challenges.

#Questions to ask before paying

• Who is the legal entity, where is it registered, and who owns it?
• Payout history: are there verified, recent payouts? How long do withdrawals take?
• Rules: daily loss calculated on balance or equity? News-trading bans? Consistency rules? Restrictions on EAs or copy trading?
• Platform and execution: which broker or data feed prices your account?
• Refunds and changes: can the firm change rules on active accounts?

#Is it for you?

A challenge is a paid test of discipline under tight risk rules – which can be useful. Treat the fee as the cost of that test, not as an investment, and compare it with trading a small real account at a licensed broker. Use the drawdown calculator to estimate your chance of breaching a drawdown limit with your strategy's win rate.