How Prop Firms Actually Work (And How They Make Money)

Prop firms charge an evaluation fee. Industry-published pass rates hover around 7–12% across firms, meaning ~88–93% of buyers fail. The evaluation fees fund the payouts to the minority who pass.

There are two main revenue models. A-book firms hedge funded traders' positions on the real market and take a spread markup or commission. B-book firms internalize the risk — they profit when traders lose and pay out from a house account when traders win. Most firms are hybrid: B-book for evaluations, A-book for select funded traders who prove profitable.

This matters for you because a B-book firm has an incentive to enforce rules aggressively when a trader is scaling. That's why 'hidden rule' disqualifications are more common at newer B-book firms than at hedged firms like FTMO or The5ers.

The scaling model exists because payouts are the firm's cost. A firm that lets one trader scale to $2M has committed to a long-term liability. Firms manage this by tightening rules at the top of the scaling ladder — you'll often see stricter consistency requirements on $500k+ accounts.

Bottom line: your firm's business model determines how they'll behave when you're winning. Ask two questions before you buy: how long have they been paying, and do they hedge?