Trading Basics: Complete Beginner's Guide to Prop Firms
New to trading or prop firms? This comprehensive guide takes you from absolute beginner to ready for your first prop firm challenge. Learn markets, strategies, risk management, and the proven roadmap to get funded in 2025.
What is Prop Trading?
Proprietary (Prop) Trading is when you trade with a firm's capital instead of your own. You pass an evaluation challenge, get funded with $25k-$200k, and split profits 70-90% in your favor.
Why Prop Trading?
- Trade with $50k-$200k instead of your own $5k
- No risk to personal savings (just evaluation fee)
- Earn $3k-$20k+/month when successful
- Access professional platforms and data
- Scale to multiple accounts for diversification
The Catch
- Must pass evaluation (60-85% fail first attempt)
- Strict rules (daily loss limits, max drawdown)
- Evaluation costs $100-$600
- Requires discipline and consistent profitability
- Not a get-rich-quick scheme
Bottom line: Prop trading is the fastest path to trading professionally without needing $25k+ personal capital. BUT it requires skill, discipline, and proper preparation. This guide will show you exactly how to prepare.
Essential Trading Terms
Asset/Instrument
What you trade (stocks, forex pairs, futures contracts, crypto)
Example: EUR/USD (forex), ES (S&P 500 futures), BTC/USD (crypto)
Long Position
Buying an asset expecting the price to go UP
Example: Buy EUR/USD at 1.0800, sell at 1.0850 = 50 pip profit
Short Position
Selling an asset expecting the price to go DOWN
Example: Short ES at 4800, buy back at 4780 = 20 point profit
Pip/Tick/Point
Minimum price movement in different markets
Example: Forex: 1 pip = 0.0001 | Futures: 1 tick varies by contract
Lot Size / Position Size
How much of an asset you're trading
Example: Forex: 1 standard lot = 100,000 units | Futures: 1 contract
Stop Loss
Automatic exit to limit losses if trade goes against you
Example: Buy at $100, stop loss at $99 = max $1/share loss
Take Profit
Automatic exit to lock in profits at target price
Example: Buy at $100, take profit at $103 = $3/share gain
Risk/Reward Ratio
Potential profit compared to potential loss
Example: Risking $50 to make $150 = 1:3 risk/reward
Leverage
Borrowing capital to control larger positions
Example: 10:1 leverage with $1,000 = control $10,000 position
Margin
Money required to open and maintain leveraged positions
Example: $5,000 margin required to trade 1 ES contract
Trading Markets Explained
Forex (Foreign Exchange)
Currency pair trading (EUR/USD, GBP/JPY, etc.)
Advantages:
- 24/5 market (Monday-Friday)
- High liquidity
- Lower capital requirements
- Many prop firms support it
Challenges:
- Can be volatile during news
- Spreads vary by broker
- Requires understanding of macroeconomics
Best For
Beginners, 24-hour availability needed
Typical Prop Account Size
$25k-$200k prop accounts
Futures
Contracts for stocks indices, commodities (ES, NQ, CL, GC)
Advantages:
- Centralized exchange (CME)
- High leverage available
- Tax advantages (60/40 treatment)
- TopStep & Apex specialize in this
Challenges:
- Higher capital requirements
- Expiration dates to manage
- More complex than forex
- Fast-moving markets
Best For
Day traders, scalpers
Typical Prop Account Size
$50k-$150k prop accounts
Crypto
Bitcoin, Ethereum, and altcoins
Advantages:
- 24/7 trading available
- High volatility = big moves
- Growing prop firm support
- Tech-savvy market
Challenges:
- Extreme volatility
- Less prop firms offer it
- Regulatory uncertainty
- Gap risk on weekends
Best For
Risk-tolerant, tech-savvy traders
Typical Prop Account Size
$50k-$100k prop accounts
Stocks/Equities
Individual company shares (AAPL, TSLA, NVDA)
Advantages:
- Familiar to most people
- Fundamental analysis possible
- Dividend income potential
- Less leverage = safer
Challenges:
- Fewer prop firms support stocks
- Higher capital needed
- Market hours only (9:30am-4pm ET)
- Pattern Day Trader rule ($25k minimum)
Best For
Fundamental analysts, swing traders
Typical Prop Account Size
Less common for prop firms
Trading Styles Comparison
Scalping
Very short-term, small profits, high frequency
Timeframe
Seconds to minutes
Trades/Day
10-100+ per day
Time Needed
6-8 hours/day
Capital
$25k-$50k prop account
Pros: Quick feedback, less overnight risk, many opportunities
Cons: Stressful, high commission costs, requires intense focus
Day Trading
Intraday positions, closed before market close
Timeframe
5 minutes to hours
Trades/Day
1-10 per day
Time Needed
2-6 hours/day
Capital
$50k-$100k prop account
Pros: No overnight risk, manageable pace, good work/life balance
Cons: Must be available during market hours, limited opportunities
Swing Trading
Multi-day positions capturing larger moves
Timeframe
Days to weeks
Trades/Day
1-5 per week
Time Needed
1-2 hours/day
Capital
$100k+ prop account
Pros: Less stressful, part-time friendly, fewer trades to manage
Cons: Overnight risk, slower feedback, many prop firms restrict this
Your 12-Month Roadmap to Getting Funded
Phase 1: Education
1-3 months
Goals:
- Understand market basics
- Learn technical analysis
- Study risk management
Actions:
- Read trading books (Trading in the Zone, Market Wizards)
- Watch YouTube channels (TheChartGuys, Rayner Teo, SMB Capital)
- Take free courses (Babypips for Forex, Investopedia Academy)
- Learn one platform (TradingView recommended)
Phase 2: Demo Trading
2-4 months
Goals:
- Practice without real money
- Develop a strategy
- Build discipline
Actions:
- Open demo account (TradingView, Think or Swim, MT4)
- Trade 50-100 times to test strategies
- Journal every trade (entry, exit, reason)
- Track win rate, risk/reward, consistency
Phase 3: Small Live Account
3-6 months
Goals:
- Experience real money psychology
- Refine strategy
- Prove consistency
Actions:
- Fund small account ($500-$2,000)
- Trade with real money (psychology is different)
- Maintain same position sizes as demo
- Aim for 3+ months of consistent profit
Phase 4: Prop Firm Challenge
1-2 months
Goals:
- Pass evaluation
- Get funded
- Start earning
Actions:
- Choose beginner-friendly firm (Apex, E8)
- Start with $25k-$50k account
- Follow challenge rules strictly
- Use 0.5-1% risk per trade maximum
Phase 5: Funded Trading
Ongoing
Goals:
- Maintain funded status
- Scale accounts
- Build income
Actions:
- Follow firm rules religiously
- Withdraw profits regularly
- Scale to multiple accounts
- Continue improving skills
8 Mistakes That Destroy Beginners
Learn from others' failures
1. Starting with Real Money Too Soon
Why it fails: Most beginners lose their first account within weeks
Solution: Demo trade for 2-3 months first. Prove consistency before risking real capital.
2. Over-Leveraging / Risking Too Much
Why it fails: One bad trade can wipe out weeks of profits
Solution: Never risk more than 1% per trade. Start with 0.5% until consistent.
3. No Trading Plan or Strategy
Why it fails: Random trading leads to random results (usually losses)
Solution: Define your setup, entry, exit, risk management BEFORE trading.
4. Revenge Trading After Losses
Why it fails: Emotional trading compounds losses quickly
Solution: Set daily loss limit (3-5%). When hit, stop trading for the day.
5. Ignoring Risk Management
Why it fails: Even good strategies fail without proper risk control
Solution: Always use stop losses. Calculate position size. Track risk/reward.
6. Jumping Between Strategies
Why it fails: Never master any single approach
Solution: Master ONE strategy with 100+ trades before trying another.
7. Trading Too Many Markets
Why it fails: Spreads attention too thin, reduces edge
Solution: Focus on 1-3 instruments maximum. Master them deeply.
8. Not Journaling Trades
Why it fails: Can't improve without data and reflection
Solution: Journal every trade: setup, entry, exit, emotion, lesson learned.
Essential Learning Resources
Books
- Trading in the Zone - Mark Douglas (Psychology)
- Market Wizards - Jack Schwager (Interviews)
- Technical Analysis of Financial Markets - John Murphy
- The New Trading for a Living - Alexander Elder
Free Platforms
- TradingView - Charts and analysis (freemium)
- Think or Swim - TD Ameritrade platform (free demo)
- MetaTrader 4/5 - Forex trading (free)
- NinjaTrader - Futures trading (free demo)
Education
- Babypips.com - Complete forex course (free)
- Investopedia Academy - Various courses
- YouTube: SMB Capital, The Chart Guys, Rayner Teo
- Our Blog - Prop firm specific guides
Communities
- Reddit: r/Daytrading, r/Forex, r/PropTrading
- Discord: Prop firm communities (FTMO, Apex, TopStep)
- Twitter/X: Follow funded traders
- TradingView public chats
Frequently Asked Questions
How much money do I need to start prop trading?
You need $100-$200 for a beginner prop firm challenge (Apex, E8). However, you should first practice with demo accounts (free) for 2-3 months. If you want to trade live before prop firms, $500-$2,000 is enough for a small account. The beauty of prop firms is you don't need $25k+ to trade seriously.
How long does it take to become consistently profitable?
Realistic timeline: 6-12 months to profitability, 12-24 months to consistency. About 10% of traders are profitable after 1 year, 30% after 2 years. With proper education, demo trading, and discipline, you can accelerate this. Don't expect to quit your job in 3 months—that's unrealistic.
Do I need to quit my job to trade?
No! Most prop traders start part-time. Swing trading requires 1-2 hours/day. Day trading 2-6 hours. You can trade before/after work, or on lunch breaks. Once consistently profitable and earning equivalent to your salary, then consider full-time trading.
What's the best market for beginners?
Forex is most beginner-friendly: 24/5 availability, lower capital requirements, many prop firms support it, high liquidity. Start with major pairs (EUR/USD, GBP/USD). Futures are great if you prefer US market hours and have 2-6 hours available during the day.
Can I really make money with prop firms?
Yes, thousands of traders earn $3k-$20k+/month with prop firms. However, 85% fail their first challenge. Success requires: proven strategy, strict risk management, discipline, and patience. Prop firms are NOT get-rich-quick schemes. Treat it as a performance-based job requiring skill development.
What's the biggest mistake beginners make?
Starting with real money before proving consistency on demo. They lose their capital within weeks, give up, and call trading a "scam." Spend 2-3 months on demo. If you can't be profitable with fake money, you won't be profitable with real money. Demo trading is boring but essential.
How much can I realistically earn with prop firms?
Beginner ($25k-$50k accounts): $500-$2k/month. Intermediate ($100k accounts): $3k-$8k/month. Advanced (multiple $100k+ accounts): $10k-$30k+/month. These assume 10% monthly returns (achievable) and 80-90% profit splits. Income grows as you scale accounts.
Do I need expensive indicators or software?
No! Free TradingView + basic indicators (moving averages, RSI, support/resistance) are enough. Most successful traders use simple setups. Expensive software won't fix bad strategy or poor risk management. Focus on skills, not tools.
Ready to Start Your Prop Trading Journey?
Now that you understand the basics, take the next step: learn how to pass your first prop firm challenge.