Prop firms and brokers, and the costs
Day 25 of 26 · 11 min read · By DT Terminal
A broker holds your money and fills your orders. A prop firm sells an evaluation and, if you pass its rules, lets you trade its account for a share of the profit. This lesson compares how each one works, what each one costs, and the rules to read before you pay for anything.
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Two ways to trade with real money
There are two common ways to trade real money. With a broker, you deposit your own money and trade it. With a prop firm (proprietary trading firm), you pay a fee for an evaluation. Pass it, and the firm lets you trade an account of its size and pays you a share of the profit.
Broker
Your money, your rules
You keep all of the profit and carry all of the loss.
Prop firm
Their account, their rules
You risk a fee, and keep a share only while you follow every rule.
Neither is better for everyone. They cost different things and fail in different ways.
Go deeper
On a broker account the only rules are your own and your margin. A prop firm account comes with the firm's rules, and breaking any one of them ends it. The rest of this lesson walks through both: what each one is, what it charges, and the rules to read before you pay for anything.
What a broker is
A broker gives you access to the market and holds your money. You place orders on a platform such as MetaTrader 5 (MT5), and it fills them one of two ways:
Trading platforms
MetaTrader 4
MetaTrader 5
cTrader
TradeLocker
NinjaTrader
TradovateThe same platform can sit on top of very different firms.
- Market maker (a dealing desk). It takes the other side of your trade. Wider spreads, often no commission.
- ECN or STP (no dealing desk). It passes your order to banks and other liquidity providers. Tighter spreads, plus a commission per lot.
What matters more is who regulates it: the FCA (UK), ASIC (Australia), CySEC (Cyprus, for the EU), or the CFTC and NFA (US).
What regulation gets you
When you lose, a market maker can gain, so a regulated market maker has to manage that conflict and give fair fills. An ECN or STP broker earns a commission or a small markup, and its spreads move more. Many brokers run both, or a hybrid, and the label on the website does not tell you everything.
Under its regulator's rules a broker usually has to:
- keep client money in segregated accounts, apart from its own, in the UK, the EU and Australia (US rules for retail forex dealers do not require this, and lean on capital requirements instead);
- cap leverage for retail clients: 30:1 on major forex pairs in the UK, the EU and Australia, and 50:1 in the US;
- give retail clients negative balance protection in the UK, the EU and Australia, so you cannot lose more than you deposited;
- belong to a compensation scheme in some places, such as the UK's FSCS, which covers up to £85,000 if an authorised firm fails.
Offshore brokers, licensed where the rules are light or missing, often advertise 500:1 leverage and deposit bonuses. The protections above may not apply, and withdrawals are where trouble tends to show up.
A licence number on a broker's website proves nothing until the regulator's register shows the same firm name, the same website address and the same licence.
What a broker costs
A broker charges on every trade, on trades held overnight, and when money moves. The first cost is the gap between the two prices.
| Cost | When you pay it | Typical size |
|---|---|---|
| Spread | Every trade, on the way in | Under 1.5 pips on EURUSD most of the day on a standard account; wider around news and at rollover |
| Commission | Per lot, on the open and on the close (raw or ECN accounts) | About $3 to $3.50 per lot per side, so $6 to $7 a round trip |
| Swap | Each night a trade is held past rollover, 17:00 New York | A few dollars per lot, sometimes a credit. Most forex pairs charge three nights on Wednesday, to cover the weekend |
| Deposits and withdrawals | When money moves | Often free by card or bank transfer. Watch for currency conversion, some payment methods and inactivity fees |
Worked example
Example 01: Spread plus commission on a 1 lot EURUSD round trip
The worked example, with every number walked through, is in the app.
Where the spread goes
On the standard account you buy at the ask, 1.08512, and could sell straight back at the bid, 1.08500: 0.00012 x 100,000 = $12 gone before price moves at all.
What leverage does
Leverage lets you open a position larger than your balance. To hold it open, the broker sets aside part of your balance as margin: the position's full value divided by the leverage. 1.00 lot of EURUSD at 1.0850 is $108,500 of currency.
| Leverage | Margin held | Value of 1 pip |
|---|---|---|
| 30:1 | $3,616.67 | $10.00 |
| 100:1 | $1,085.00 | $10.00 |
| 500:1 | $217.00 | $10.00 |
The last column is the point. Leverage changes how much of your balance is tied up, not what each pip costs. Your risk comes from the lot size and the stop (see How to choose your risk).
High leverage only makes it easier to open a size the account cannot survive. When free margin runs out, the broker closes your positions for you: a stop out.
What a prop firm is
A prop firm pays you a share of the profit on capital it provides. To get the account you pass an evaluation, or challenge: a demo account with strict rules, a profit target and a loss limit. Every attempt costs a fee.
At most retail prop firms the funded account is simulated too. Your trades are not sent to the market. The firm pays your share from its own money, and at many firms much of that comes from the fees of traders who fail.
So the firm's rules decide everything. It can change them, refuse a payout it says broke one, or close down. Read what traders say about the payout process, not the sign-up.
Go deeper
Some firms copy their best funded traders into real accounts, but your payout does not depend on it. Several firms did close or pause payouts in 2023 and 2024.
Futures prop firms work a little differently: some charge a monthly subscription instead of one fee per attempt, and most use a trailing drawdown, often set from the end of day balance.
How a challenge works
Firms build their rules from the same parts. Typical figures for a two-step forex challenge:
Prop firm names you will see
Apex Trader Funding
FTMO
FundedNext
The5ers
TopstepListed alphabetically, not ranked or recommended. Rules change, so read each firm's current rules page before you pay.
| Rule | What it means | Typical |
|---|---|---|
| Phases | How many stages you must pass | 1 or 2; two-step is the most common |
| Profit target | The gain that passes a phase | 8% to 10% in phase 1, 5% in phase 2 |
| Max daily loss | The most you may lose in one day, measured from the day's starting balance or equity | 5% at many firms; 3% to 4% on some programs |
| Max overall loss | How far below the starting balance the account may ever go | 10% static, often less if trailing |
| Minimum trading days | Days with a trade before a phase can pass | None to 5 |
| Time limit | How long you have to hit the target | None at many firms; 30 or 60 days at others |
| News rules | No opening or closing trades close to high-impact releases, often on funded accounts | A few minutes either side |
| Weekend rules | Whether trades may stay open over the weekend | Closed by Friday on some account types |
| Consistency | No single day may be too large a share of the total profit | At some firms |
Most forex firms measure the daily loss on equity, so an open trade past the limit fails the account even if it would have come back. A trailing drawdown follows your highest balance up.
DT Terminal Charts$100,000 challenge · D1Phase 1Each candle is one day; its wick shows how far equity moved. Check whether your tracker measures the daily limit on closed trades or on equity, and from which day's close. The calculator below finds the losing trade, in a row, that hits each limit.
Interactive tool
Challenge limits calculator
This interactive tool runs in the app, with your own numbers.
The chart in numbers, and sizing under the daily limit
A trailing drawdown with a $6,000 limit on $100,000: reaching $104,000 lifts the floor from $94,000 to $98,000. Many trailing floors stop rising once they reach the starting balance. Release times for the news rules are covered in Key news events.
Each candle closes on the day's balance. On day 9 the account closed at 104,300, but equity touched 103,650 during the day, 1,250 above that day's floor of 102,400. A firm that measures on equity would have ended the attempt if that dip had reached the floor, 1,250 lower, however the day closed. Leave room for that dip inside a day.
Worked example
Example 02: How a 5% daily loss limits size on a $100,000 challenge
The worked example, with every number walked through, is in the app.
What each route costs
| Broker account | Prop firm challenge | |
|---|---|---|
| You pay up front | A deposit, which stays yours | A fee per attempt, gone if you fail |
| Most you can lose | Your deposit, with negative balance protection | The fee, and the time |
| Trading costs | Spread, commission and swap | Spread and commission inside the account |
| Profits | 100% yours | Your split, often 80% to 90%, after a waiting period |
| Rules | Your own, plus margin | The firm's: target, loss limits, news, weekends |
| Taking money out | Your balance, when you choose | Payouts on the firm's schedule, if every rule was kept |
Worked example
Example 03: Three failed challenges against a small live account
The worked example, with every number walked through, is in the app.
Rehearse the limits before you pay
Go deeper
A 5% month on $1,000 is $50, while 5% of a funded $100,000 at an 80% split pays $4,000. A challenge charges you to learn; a demo account does not.
In the live account, 1% of $1,000 is $10 a trade, or 0.04 lots on a 25 pip EURUSD stop. Each of the 20 losses is 1% of what is left, so the run costs $182.09. Costs at that size are about $0.36 a round trip. The challenge fee only makes sense once your results are steady enough to pass.
A common bar before paying for a challenge is a few months and at least 50 demo trades under one written plan, inside the same loss limits the challenge would set. Placing your first trade covers opening a demo in MT5.
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