Forex glossary
Prop firm (proprietary trading firm)
A prop firm operates proprietary trading or a trader-evaluation program. Retail programs can use simulated accounts and capital, with rewards governed by contract. Access to a displayed capital amount does not imply ownership of those funds; fees, limits and payouts depend on the model.
Illustrative example
How does it work in practice?
A hypothetical program displays 100,000 USD in simulated capital and charges a 200 USD evaluation fee. The nominal balance cannot be withdrawn; any reward depends on satisfying the terms of a separate agreement.
A case to work through
Two possible limit bases
Model: initial simulated funds 20,000 USD; balance 19,400, floating P/L −500 USD; contractual equity threshold 19,000 USD.
- Equity is 18,900 USD.
- It is 100 USD below the threshold although balance remains above it.
What follows? Read the loss-limit definition and measurement timing.
Example boundary: These terms are invented; other programs use different bases and rules.
A useful distinction
Prop firm (proprietary trading firm) / Demo account
Demo practices operation; a prop program may also assess contractual compliance and award rewards.
Check your understanding
Check whether a loss rule measures balance or equity.
Show the answer and explanation
Yes, equity is 9,300 USD
9,700 − 400 = 9,300, below the threshold.
Accounts, copying and programs
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Read the fuller explanation
Related terms
Sources and documentation
- FTMO: how the program works
A provider example using simulated capital and rewards, not the fictional exercises’ terms.
Document read:
The example illustrates the mechanism. Check current account conditions and instrument specifications with the provider.