What is a Prop Firm?
What is an Evaluation-Based Prop Firm?
A Clear Guide to How They Work, Their Features, Benefits, and Key Considerations
Table of Contents
2. Evaluation-Based vs. Traditional Prop Firms (Comparison Table)
3. Features of an Evaluation-Based Prop Firm
4. How Evaluation-Based Prop Firms Work
5. The Profit-Sharing Mechanism
6. Benefits and Considerations of the Evaluation Model (Rule Examples)
A proprietary trading firm (prop firm) is an organization that uses its own capital to trade in financial markets and pursue profits. The basic structure involves traders using the firm's funds to trade and receiving a portion of the profits they generate as compensation.
In recent years, a model incorporating an evaluation (or challenge) process has become popular, focusing on the education and development of individual traders. This is known as an "evaluation-based prop firm." Unlike traditional prop firms or those that offer live-funded accounts immediately upon qualification, this model is distinguished by its strong emphasis on an educational framework.
Mini Glossary (for Beginners)
・Demo (Simulation): A practice or evaluation trading environment using virtual funds instead of real money.
・Proprietary Trading: Trading with the company's own funds, not client money.
・Profit Split: A system where generated profits are divided between the trader and the firm.
・Drawdown: The decline from a peak in an account's value. Firms often set maximum limits for this.
1. What is a Prop Firm?
A proprietary trading firm is a company that trades in financial markets using its own capital. Traders operate with funds provided by the firm, not their own, and receive a share of the profits.
Globally, the definition of proprietary trading is widely understood as firms trading only their own capital in securities and futures markets, without holding client accounts. However, a model incorporating an evaluation process to educate and develop individual traders has also gained traction.
This "evaluation-based prop firm" model is distinct from traditional prop firms or those providing immediate live funding, as it is structured with a strong educational focus.
Specifically, it employs a system where aspiring traders first trade in a virtual environment (demo account). Their performance is assessed over a set period to see if they can meet predefined rules and criteria.
2. Evaluation-Based vs. Traditional Prop Firms (Comparison Table)
| Category | Evaluation-Based Prop Firm (Education & Assessment Model) | Traditional Proprietary Trading Firm (Existing Model) |
|---|---|---|
| Trading Capital | Primarily uses demo (virtual) accounts for evaluation and trading. Real funds are generally not used. | Executes orders in the market with the firm's real capital. |
| Onboarding Process | Passing a paid evaluation (challenge) leads to a "funded" account eligible for payouts, which also operates in a virtual environment. | Typically involves hiring/contracting based on a track record or recruitment process. |
| Rules | Clear evaluation criteria are set, such as profit targets, drawdown limits, and trading hours. | Internal risk management exists, but specific quantitative rules for evaluation are limited. |
| Compensation | Profit split (e.g., 60-90%). The frequency and limits vary by firm. | Salary + bonus, or a percentage of net profits. |
| Education & Development | Often bundled with educational programs like tutorials and webinars. | Primarily in-house training and mentorship. |
| Regulatory Status | Many operate as educational or evaluation services. | Operates as a proprietary trading company engaged in self-funded trading. |
Key Points
・The evaluation model is more like an "education & assessment + profit sharing" service. In contrast, the traditional model is purely about a company managing its own capital.
・The "funding" provided in the evaluation model is typically in a demo (virtual) environment, with no actual orders placed on the live market.
3. Features of an Evaluation-Based Prop Firm
Capital Provision: Demo Accounts as the Standard
Traders operate with demo funds (in a virtual environment) provided by the evaluation-based prop firm, allowing them to gain experience under near-real market conditions without risking their own capital.
Education and Support System
A key feature is the integration of learning and practice through educational content, regular webinars, proprietary materials, and mentorship.
Clear Risk Management Rules
Trading rules are clearly defined, including daily/maximum drawdown limits, lot size/position restrictions, and specific trading hours.
Profit-Sharing Model
Once performance criteria are met, profits are shared at a predetermined ratio. The specific ratio and conditions for starting payouts vary by firm.
4. How Evaluation-Based Prop Firms Work
Evaluation-based prop firms typically use a step-based system centered on demo account evaluation. Traders must meet targets for profit, loss limits, and trading days over a certain period to advance to a "payout-eligible account."
Evaluation Process (Challenge Period)
After achieving the goals in the initial stage (e.g., the challenge), traders pass the evaluation and are given a "pro" account, making them eligible for profit splits.
Trading Environment
Firms provide a virtual educational environment that closely mimics live trading, with real-time charts and a trader dashboard, allowing individuals to test their skills effectively.
5. The Profit-Sharing Mechanism
In evaluation-based prop firms, the split ratio, starting conditions, and frequency are detailed in each company's rules. While high ratios like 60% to 90% are common, it's crucial to also check conditions such as the payout schedule, maximum limits, and any waiting period before the first withdrawal.
6. Benefits and Considerations of the Evaluation Model (Rule Examples)
Key Benefits
No Risk to Personal Capital
Since you trade with virtual funds, you can gain practical experience while keeping your learning costs limited.
Skill Development and Career Opportunities
Trading under quantitative rules helps you hone risk management and consistency. Your progress is easily visualized through performance-based rewards in the firm's educational environment.
Community and Networking
You can often gain access to communities for information exchange among traders and webinars, providing a space for continuous learning.
Considerations (Common Rules That Vary by Firm)
- Drawdown type (fixed/trailing, daily/overall) and reset options
- Minimum trading days, holding times, and restrictions on trading around news/economic events
- Permitted instruments and sessions (stocks, indices, FX, commodities), and rules on holding positions over weekends/overnight
- Policies on strategies like automated trading, copy trading, and martingale/grid trading
- Profit split ratio, time to first payout, frequency, and maximum limits
- Platform (e.g., cTrader/MT5) and conditions regarding commissions and spreads
Checklist (Confirm Before You Apply)
1) Does the evaluation format match your goals (learning/income)?
2) Are your trading strategies restricted by the rules?
3) Are the payout conditions and cost structure clear?
4) Is the quality of education and support adequate?
7. Summary and About Fundora
An evaluation-based prop firm offers a platform for learning and practice, combining education, quantitative rules, and profit sharing centered around a demo environment. It is well-suited for those who want to develop disciplined risk management and consistency without risking personal funds. However, since the rules vary significantly between firms, careful review beforehand is essential for success.
Fundora is an evaluation-based prop firm originating from Japan.
We provide a fair visualization of skills through education and evaluation. We offer a virtual trading environment with demo funds for educational purposes, and upon successful completion, we provide an opportunity for an 80% profit split paid as an information fee to professional traders.
For more details on Fundora's philosophy and operational policies, please see the introductory article below.
Frequently Asked Questions
Are there any qualifications or skills required to join an evaluation-based prop firm?
No special qualifications are required. What is needed is basic trading knowledge and the mentality to manage risk according to the rules. Evaluation-based prop firms often provide extensive learning environments, including educational content and webinars, making them accessible even for beginners.