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What Is a Proprietary Trading Firm? Old Model vs New
A proprietary trading firm trades its own capital. Most firms called prop firms today sell simulated evaluations instead. How the two models differ.
- By PipValley Editorial
- Published
- 4 min read
The phrase proprietary trading means trading for the firm's own account. A bank's proprietary desk, a market maker or a small arcade of day traders on the firm's capital are all proprietary trading. When a founder asks how to start a proprietary trading firm today, though, they nearly always mean the evaluation model.
How do the two models compare?
The two models share a name and almost nothing else. The comparison below is general; every firm differs in the details.
| Factor | Traditional prop trading firm | Evaluation prop firm |
|---|---|---|
| Main revenue | Trading profits on firm capital | Evaluation fees, resets and add-ons |
| Trader's account | Live, firm capital | Simulated |
| Trader pays | Sometimes a desk fee or capital contribution | A challenge fee |
| Firm's main risk | Market losses | Payouts exceeding fee revenue |
| Typical scale of traders | Dozens to hundreds | Thousands of customers |
| Key technology | Execution, clearing, risk | Platform, challenge engine, payments, CRM |
Where did the older model go?
Bank proprietary trading shrank after the 2008 crisis. The Volcker rule, created by section 619 of the Dodd-Frank Act, "generally prohibits banking entities from engaging in proprietary trading," according to the Federal Reserve. Independent proprietary firms still exist, but they recruit small numbers of traders and rarely market to the public.
The evaluation model filled the gap in public demand. Topstep, founded in 2012 according to Wikipedia, ran its Trading Combine as an evaluation; FTMO says it has operated since 2015.
Are the lines blurring?
Yes, from the evaluation side. Some evaluation firms copy their best traders into live accounts, and some are adding regulated businesses: FTMO completed its acquisition of OANDA on December 1, 2025, and Topstep launched an introducing broker cleared by Plus500 in January 2026. A firm that mixes simulated evaluations with live trading needs legal advice on each part, and a website that says clearly which is which.
Questions
Is a prop firm a proprietary trading firm?
In name, yes; in practice, usually not. Most firms called prop firms today sell simulated evaluations rather than trading their own capital, so their business is closer to a paid test with a reward program than to a trading desk.
Do traditional prop firms charge traders?
Some do, through desk fees or required capital contributions, and terms vary widely. Evaluation firms charge a fixed fee per challenge instead and pay rewards from fee revenue.
Which model should a new founder start?
Most new founders start the evaluation model, because the technology can be rented and no trading capital is needed beyond a payout plan. A traditional desk needs capital, execution and clearing relationships, and usually regulatory permissions.
Sources
Illustrative figures, not a forecast. Nothing on this site is legal, tax or financial advice. PipValley is a web design studio; we don’t sell challenges, run trading accounts or provide trading platforms. Spotted something out of date? Tell us and we’ll fix it with the date.
Keep reading
Related guides.
What Is a Prop Firm? The Operator's Definition
How to Start a Prop Firm in 2026: An Operator's Guide
Is a Prop Firm a Broker? The Difference That Matters
When Did Prop Firms Start? A Short History
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