Proprietary trading firms, or prop firms, offer skilled traders the chance to access big capital without having to dip too deeply into their own pockets. Whether it’s Forex, indices, or commodities, prop firms give traders a chance to scale their trades by using the firm’s funds, with profits shared as part of the deal.
This setup offers a much-needed headstart to traders with talent but limited resources to trade at scale. However, before diving in, it’s worth knowing how these firms make their money. A firm with a clear and honest revenue model doesn’t just show fairness—it also proves it’s invested in your success.
By the end of this article, you’ll understand how prop firms make money and what it means for you as a trader. This knowledge will help you make better, more informed decisions. Stick around!
Challenge Fees: The Primary Revenue Source
Challenge fees are central to how most prop firms operate. Similar to the price of admission, traders pay these fees to prove they’ve got the skills, discipline, and proper mindset to handle the firm’s capital.
If successful, they gain access to a funded account, trading with the firm’s capital. For some firms, these fees are a primary revenue stream—regardless of whether traders succeed or fail.
How Challenge Fees Work
When traders sign up for a challenge, they’re given a simulated account along with a set of strict rules to follow. To pass, they must meet profit targets while staying within limits like drawdown caps or overall loss thresholds.
Those who pass earn a funded account, and sometimes challenge fees are refunded. For those who don’t pass, the upfront fees are typically lost.
This model ensures firms earn from every participant. These fees provide a steady, highly profitable income stream that keeps the firm’s business model running.
Strict Rules and Low Pass Rates
Some firms rely heavily on challenge fees, promoting them as gateways to large funding while enforcing rules that keep pass rates low. This creates a situation where failed attempts generate ongoing revenue without the need for live trading profits.
A position size calculator helps traders determine the right trade size based on their risk tolerance and account parameters. By using this tool, traders can maintain proper risk management, increasing their chances of passing evaluations and sustaining long-term profitability.
Many of these firms impose strict conditions to drive up failure rates. Some of these conditions include:
- Tight daily drawdown limits (e.g., 2%) that disqualify traders with just one bad day, even if they perform well overall.
- Minimum trading day requirements that force slower progression.
- Restrictions on strategies, like restrictions on holding trades overnight or other styles of trading which remove potential advantages.
These rules can be frustrating, especially when they seem engineered to ensure more traders fail than succeed.
Evaluating Transparency and Fairness
The reasons mentioned above make choosing the right prop firm an important factor. Traders should take time to review the rules before committing to a challenge.
Top One Trader exemplifies fairness by offering unlimited time to pass challenges and setting clear, realistic risk parameters. Their approach shows how challenge fees can balance profitability with genuine opportunities for traders to succeed.
While challenge fees are an unavoidable part of prop trading, choosing a transparent and fair proprietary trading firm ensures they serve as a bridge to success rather than a costly barrier.
Profit Sharing In Prop Trading
Profit sharing is another important revenue stream for prop trading companies that depends on how well-funded traders perform. After passing the evaluation phase, traders use the firm’s capital under a profit-sharing agreement, where they keep a portion of their earnings while the firm takes the rest.
How Profit Sharing Works
Profit splits usually fall between 10% and 50% for the firm, depending on the agreement and the trader’s performance. For instance, with an 80/20 split, if a trader earns $10,000, they keep $8,000 while the firm takes $2,000. This aligns the firm’s earnings with the trader’s success, creating a mutual incentive for profitability.
Top One Trader offers industry-leading splits of up to 90% in favor of the trader. This competitive structure is why the firm is known for its dedication to rewarding talent.
Why Successful Traders Are Essential
While challenge fees provide upfront income, long-term profitability depends on the success of funded traders. A group of consistently profitable traders can bring steady revenue to the firm, creating stability and growth opportunities. Beyond financial benefits, these traders improve the firm’s reputation, attracting more participants to their programs.
Aligning Interests
Profit sharing creates a win-win situation. When traders succeed, the firm benefits too. This shared success highlights the importance of choosing firms that prioritize supporting their traders over just collecting fees.
Trade Copying as an Additional Revenue Stream
Trade copying gives prop firms a clever way to profit from their top-performing traders. By mirroring demo account trades into live financial markets, firms transform simulated success into tangible earnings, all without increasing their risk exposure.
Trade copying relies mostly on advanced monitoring software. Prop firms track demo trades from funded traders, evaluating factors like profitability, risk management trading and consistency
When a trader’s performance meets the firm’s benchmarks, their trades are mirrored on live trading accounts funded by the firm’s capital. This lets the firm earn directly from market activity using tested strategies while traders remain in demo environments.
This approach brings a twofold benefit:
Aligned Success: Firms earn when their traders perform well. This strengthens the partnership and incentivizes long-term trader success.
Diversified Revenue: Unlike challenge fees, trade copying isn’t dependent on trader turnover. It provides a steady, scalable income stream by turning skill into profit.
Trade copying goes beyond revenue generation—it reinforces the value of skilled traders. When the firm grows alongside its traders, it creates a collaborative environment based on trust and shared goals.
Educational Services Offered By Prop Firms
Some prop firms offer trading courses, mentorship programs, and webinars as a secondary income stream. These resources help traders refine their trading skills before tackling evaluations or funded accounts. Though less important than challenge fees, they add valuable revenue diversification.
Well-designed programs can provide good insights into trading strategies and risk management. Guidance from experienced professionals or practical market analysis can make the cost worthwhile.
Some firms, however, use educational services as a way to make quick money. They charge high prices but offer little in return, often while giving generic advice or outdated strategies.
Before choosing a program, traders should evaluate:
- The quality of the material.
- The credentials of the mentors.
- Whether the cost aligns with the value provided.
Educational services should empower—not exploit—traders. That’s why Top One Trader offers coaching and market insights as part of their challenges, free of extra charges, for some value without hidden motives.
Transparency Matters in Prop Firms
Transparency is one of the most important aspects of prop trading. A trustworthy firm clearly explains how it earns money, which helps traders make smart, confident choices.
If a firm hides its revenue model, that’s a warning sign. It often points to a business more interested in quick profits than in helping traders succeed.
The best firms are upfront. They are open about revenue streams and provide realistic trading conditions. Anything less, especially hidden fees, is a reason to pass.
Top One Trader’s Transparent Approach to Revenue
Top One Trader is a firm committed to fairness and clarity in its revenue model. Challenge fees form the foundation, giving traders access to evaluations with realistic rules without hidden stipulations. This shows the firm’s commitment to creating a fair experience for everyone involved.
With a trader-first mindset, Top One Trader builds a relationship that’s both collaborative and rewarding. Transparency and achievable standards lay the groundwork for an environment where both traders and the firm can thrive together.
Final Thoughts
Prop firms keep their business running through a variety of revenue streams. Challenge fees are the main resource for many, but profit-sharing, trade copying, and educational services all contribute to creating a balanced and sustainable model.
A firm’s approach to making money says a lot about its priorities. Is it committed to your growth or just chasing profits? The right choice comes down to clear practices, fair conditions, and trust.
Top One Trader checks all the boxes. With a transparent revenue model and a trader-first mindset, they create opportunities that work for both sides. If you’re ready to take prop trading seriously, take on the Top One Trader challenge and see where it can take you.
