How Do Prop Firms Make Money, and Are They Legit?

Most retail prop firms make their money mainly from challenge fees, not from trading profits, and the "funded" accounts they give traders are usually simulated. That doesn't make them scams: established firms do pay successful traders a share of their simulated profits. But it means most customers pay fees and never receive a payout, and it means a prop firm is not a regulated broker holding your money. Some are well run and some have failed; you need to check before you pay.

How a retail prop firm works

1. You pay a fee for a challenge (an evaluation) on an account of a given size.
2. You must hit a profit target without breaking drawdown and other rules.
3. If you pass, you get a "funded" account and are paid a share of the profits it makes, often 80-90%.

FTMO, one of the largest firms, states that its client accounts are "demo accounts with fictitious funds", that trading is "in a simulated environment only", and that its funded FTMO Accounts also use fictitious funds with real market prices. FTMO trades its own capital separately. Many other firms work the same way.

Where the money comes from

• Challenge fees. The main source. Most traders fail and many try more than once.
• Retries, resets and add-ons, which are common across the industry.
• A share of profits is paid out to the minority of traders who are funded and profitable, often with the first fee refunded.

The best public data comes from FPFX Tech, a technology provider to prop firms, reported by Finance Magnates in September 2024. Across more than 300,000 accounts held by 100,000 traders at 10 firms:

• 14% of traders passed a challenge.
• About 7% of all traders received a payout.
• The average trader spent about $800 on challenges, usually over about three attempts.

In March 2025 the CEO of The Funded Trader said 5-10% of its traders pass and only about 20% of funded traders get a payout. These are industry and self-reported figures, not audited ones, but they point the same way: most customers pay fees and don't receive a payout.

Are prop firms legit?

Some are and some aren't, and the line has moved over the last few years:

• Regulation. Retail prop firms are generally not regulated by the FCA, because traders are buying an evaluation, not depositing money with a broker. Money you pay a prop firm has no FSCS or Financial Ombudsman protection.
• Firms have closed. In 2023 the US CFTC brought a case against the operator of My Forex Funds; in May 2025 a US court dismissed it and sanctioned the CFTC, so the allegations were never proven. In February 2024 MetaQuotes ended True Forex Funds' MetaTrader licences, and the firm shut down in May 2024.
• Platform shake-up. Also in February 2024, MetaQuotes and the brokers licensing its software cut off prop firms serving US clients, pushing many firms onto other platforms; some have since returned to MT5.
• Consolidation. FTMO completed its purchase of OANDA, a regulated broker, in December 2025.

How to check a prop firm before you pay

1. Find the company behind it. Legal name, registration number and address, checked in the official company register for its country.
2. Search regulator warning lists: the FCA Warning List in the UK and the CFTC's RED list in the US.
3. Read the rules in full, especially consistency rules, banned strategies, maximum allocation and anything that lets the firm refuse a payout. Our guides to consistency rules and drawdown rules explain the common ones.
4. Check who provides the platform and prices, and whether that provider is a regulated broker.
5. Look for evidence of payouts beyond the firm's own marketing, such as independent payout trackers and long-standing traders, and read reviews with caution.
6. Only pay what you can afford to lose, and treat the fee as the cost of the evaluation, not an investment.

Our prop firm reviews compare rules and payouts across the major firms.

Prop firms and EAs

Many firms allow Expert Advisors. FTMO, for example, allows "algorithmic trading, EAs, etc." as long as trading reflects real market conditions, but bans practices such as latency arbitrage, hyperactive trading (more than 2,000 server requests a day) and copying trades between accounts. Ready-made EAs carry a specific risk: if many traders run the same EA, the firm may treat it as one trader and refuse funding over its allocation limit. See prop firms that allow EAs.

If you trade challenges with an EA, building your own avoids that problem and lets you set drawdown limits to the firm's rules before the search starts. That is how Nebula, the EA software we make, works; see EAs for prop firm challenges and the prop firm pass calculator.

Sources: FTMO, how it works; FTMO technical FAQ; Finance Magnates, FPFX data, 18 Sep 2024; Finance Magnates, 18 Mar 2025; Finance Magnates on the My Forex Funds ruling; FX News Group on True Forex Funds; Finance Magnates on MetaQuotes and prop firms; OANDA press release; FTMO strategies FAQ; FTMO forbidden practices. Checked 2 October 2026.

Frequently asked questions

How do prop firms make money?

Mainly from challenge fees, plus retries and add-ons. Funded accounts at most retail prop firms are simulated, and the firm pays successful traders a share of their simulated profits. Industry data suggests only around 7% of traders ever receive a payout.

Are prop firms legit?

Some are well established and do pay traders; others have closed. Retail prop firms are generally not FCA-regulated and fees have no FSCS protection, so check the company, its rules and regulator warning lists before paying.

Do prop firms use real money?

Usually not for traders' accounts. FTMO, for example, states that client accounts, including funded FTMO Accounts, use fictitious funds with real market prices, and that FTMO trades its own capital separately.

What percentage of traders pass prop firm challenges?

Published figures are few and not audited. Data from 300,000 accounts at 10 firms, reported in 2024, showed 14% passing and about 7% of all traders receiving a payout.

Does FTMO allow EAs?

Yes. FTMO allows algorithmic trading and EAs as long as trading reflects real market conditions, but bans practices such as latency arbitrage, hyperactive trading and copying trades between accounts. Ready-made EAs used by many traders can hit FTMO's allocation limits.

Screens show backtests and simulations. Past performance is not a reliable indicator of future results. Trading involves risk to your capital.