Updated
Have you heard the term “prop firm” before?
This system has been attracting a lot of attention in the world of FX and trading recently. Even with zero self-capital, depending on your skills, you can manage funds ranging from several million to tens of millions of yen, which is why many traders are giving it a try.
In this article, we will thoroughly explain the meaning, structure, benefits, and drawbacks of prop firms, as well as compare the four major companies that can be used from Japan, and how to get started.
✅ What you will learn from this article
- The meaning and basic structure of prop firms
- Differences from traditional FX trading
- 5 benefits and 4 drawbacks of prop firms
- Comparison of 4 major prop firms that can be used from Japan
- 5 steps to get started with prop firms
【Conclusion】Prop firms are a “system where you can trade with the company’s funds”
🔶 3-sentence summary of prop firms
- The company provides the capital → You can manage funds ranging from several million to tens of millions of yen without your own capital
- Profit sharing system → You receive 70-90% of the profits you earn
- Losses are covered by the company → The only thing you risk is the challenge participation fee
| Item | Traditional FX Trading | Prop Firm |
|---|---|---|
| Required Self-Capital | Several hundred thousand to several million yen | Around 10,000-50,000 yen (participation fee only) |
| Funds that can be Managed | Only the amount deposited | Several million to tens of millions of yen |
| Loss Risk | Fully self-responsible | Only the participation fee (covered by the company) |
| Profit Share | 100% | 70-90% |
| Entry Barrier | Requires financial resources | Anyone with skills can do it |
What are prop firms? Explaining the meaning and definition
The origin of the term “prop firm”
Prop firm is the short form for “Proprietary Trading Firm“.
- Proprietary = One’s own, independent
- Trading Firm = Trading company
In other words, it means “a company that trades using its own capital”.
The basic structure of prop firms
The business model of prop firms is very simple.
- Traders participate in the “Challenge” (pay the participation fee)
- Prove their skills in a demo account (achieve the target profit and comply with the rules)
- If they pass, they are certified as a “Prop Trader”
- Actual trading with the company’s capital
- Receive 70-90% of the profits as compensation
📝 Key Point
Prop firms are a business of “finding skilled traders and having them manage the company’s capital”. The company earns revenue from the traders’ profits, and the traders can manage large amounts of capital. It’s a Win-Win relationship.
The structure of prop firms | Explained in 3 steps
Step 1: Participate in the Challenge
First, you apply for the prop firm’s Challenge (evaluation program) by paying the participation fee. The participation fee varies depending on the account size, generally around 10,000-100,000 yen.
Step 2: Clear the evaluation phase
You need to meet the following conditions while trading on the demo account:
- Achieve the target profit (e.g., 8-10% of the account balance)
- Comply with the maximum loss rule (e.g., no more than 5% per day, 10% overall)
- Clear the minimum number of trading days (e.g., at least 4 days)
Step 3: Become a prop trader
Once you pass the evaluation, you can start real trading using the company’s capital. If you earn profits, 70-90% of it will be paid as your compensation.
5 Benefits of Prop Firms
Benefit 1: Almost zero risk of losing your own capital
The biggest benefit is that there is almost no risk of losing your own capital. The only thing you can lose is the initial challenge participation fee (around 10,000-100,000 yen), and any trading losses are covered by the company.
Benefit 2: Able to manage large funds with a small amount
For example, with a 20,000 yen participation fee, you have the possibility of managing 5-10 million yen in capital. For most people, managing such a large amount with their own capital would be very difficult.
Benefit 3: Can earn income based on trading skills alone
It solves the dilemma of “I can’t earn money through trading because I don’t have the capital”. As long as you have the skills, you can thrive as a professional trader regardless of your capital.
Benefit 4: Most of the profits are yours
The profit sharing rate is set high at 70-90%. Even though you’re using the company’s capital, you can receive the majority of the profits.
Benefit 5: Can try again if you fail the challenge
Even if you fail the challenge, you can try again by paying the participation fee. Many prop firms have a reset function and discounted re-challenge options.
4 Drawbacks and Cautions of Prop Firms
⚠️ Points to be cautious about
Prop firms have many benefits, but it’s important to understand the drawbacks and cautions as well before using them.
Drawback 1: Challenge pass rates are not high
The overall industry challenge pass rate is said to be around 10-20%. In other words, 8-9 out of 10 traders fail the challenge and lose their participation fee.
Drawback 2: Strict rule compliance is required
Prop firms have strict rules such as maximum daily loss rate and overall maximum loss rate. Even a slight deviation