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How do Prop Firms make money? Are they a scam or legit?

Proprietary trading firms, or prop firms, are businesses that engage in trading financial instruments, such as stocks, bonds, currencies, and commodities, with their own capital. Prop firms make money through a variety of methods, including:

  1. Profit sharing: Prop firms typically charge traders a performance fee, which is a percentage of the profits that the trader generates. In addition, prop firms may also charge traders a management fee, which is a fixed fee that is charged regardless of the trader’s performance.
  2. Spread capture: Prop firms make money by buying and selling financial instruments at different prices. The difference between the buying and selling price is called the spread. Prop firms make money by taking advantage of spreads, which are typically narrow for liquid financial instruments.
  3. Market making: Prop firms can act as market makers, which means that they provide liquidity to the market by buying and selling financial instruments at quoted prices. Prop firms make money on the difference between the prices at which they buy and sell financial instruments.
  4. High-frequency trading (HFT): Prop firms can use HFT algorithms to execute large numbers of trades very quickly. HFT algorithms can take advantage of small price discrepancies in the market to make profits.
  5. Arbitrage: Prop firms can use arbitrage to take advantage of price discrepancies between different markets. For example, a prop firm might buy a financial instrument in one market and then sell it in another market if the price is higher in the second market.

The specific methods that a prop firm uses to make money will depend on a variety of factors, including the firm’s risk tolerance, investment strategy, and the type of financial instruments that it trades.

There are several risks associated with proprietary trading, including the risk of market volatility, the risk of fraud, and the risk of human error. It is important for investors to carefully consider these risks before investing in a prop firm.

Are prop firms scams?

  • Due Diligence: Legitimate prop firms are regulated and transparent. However, as with any industry, vigilance is advised.

What is the success rate of prop firm traders?

  • Hard Truths: Only a small percentage excel, highlighting the importance of comprehensive evaluation programs.

What are the benefits of trading with a prop firm?

  • Capital and Tools: Traders gain access to significant capital, advanced tools, and professional support.


Prop firms craft a unique ecosystem where risks are balanced with potential rewards. It’s not just about the profits they make, but the trading talent they amplify. As we demystify how prop firms make money, it’s clear that choosing a firm like FTMO, with its reputable track record, can be a prudent step for aspiring traders.

For those ready to navigate the proprietary trading landscape, prop firms offer a sea of possibilities—each with its own risks and rewards. Dive deeper into the world of proprietary trading with tools like the POW Banker EA for MT5 and discover how you can maximize your trading potential.

For a comprehensive selection of tools that cater to every trader’s needs, visit CheaperForex.com and elevate your trading journey today.

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