Trading Tips & Prop Firm Strategies | Cointracts Learning Hub

In most jurisdictions, proprietary trading firms, particularly online evaluation firms, are generally not required to hold a traditional brokerage license because they use their own capital for trading and do not manage or invest client funds. Traders typically pay an evaluation fee for a service, not as an investment. This structure legally classifies traders as independent contractors providing a service, placing many prop firms outside the direct oversight of financial regulatory bodies like the SEC or FCA, which primarily focus on protecting investors' capital. However, this regulatory gray area is evolving, with authorities increasingly scrutinizing firms for fraudulent practices rather than simply for being unlicensed.

Proprietary trading firms evaluate potential traders primarily through a multi-stage evaluation challenge designed to test profitability, risk management, and consistency. This process typically involves meeting specific profit targets within set drawdown limits (both daily and overall), often without a time constraint in modern models, while adhering to all firm-specific trading rules. Success demonstrates a trader's ability to generate returns while protecting the firm's capital.

Starting a proprietary trading firm involves creating a detailed business plan, securing substantial capital, navigating complex legal and regulatory requirements, building a robust technology infrastructure, and establishing a clear strategy for trader acquisition and risk management. The process demands expertise in both financial markets and business operations to build a sustainable and profitable entity.

Proprietary trading firms select traders through a rigorous evaluation process designed to identify individuals who demonstrate consistent profitability while adhering to strict risk management rules. The most common method involves a multi-stage trading challenge on a simulated account, where candidates must meet specific profit targets without exceeding predefined drawdown limits. This performance-based approach allows firms to verify a trader's skill and discipline before allocating company capital.

To find the best prop firms, traders must meticulously evaluate several key factors: the firm's evaluation process (profit targets, drawdown rules, and time limits), the profit-sharing model, available funding and scaling opportunities, the range of tradable assets, and the firm's overall reputation and support system. A thorough examination of these elements ensures you partner with a firm that genuinely supports your trading success rather than one designed to collect evaluation fees.

Yes, you can trade options with some prop firms, but it is significantly less common than trading forex, futures, or equities. The availability is limited because the non-linear risk profile and complex strategies associated with options make it challenging for many proprietary trading firms to manage risk effectively across numerous traders. Firms that do offer options access typically have more stringent rules, specialized platforms, and a different evaluation structure compared to their futures or forex counterparts.

While Thumbtack does not universally mandate that all professionals carry insurance, it strongly encourages it and requires it for certain services or in specific situations. For most professionals, the platform’s policy places the responsibility of carrying adequate and legally required insurance directly on the business owner. Thumbtack does perform a background check on pros but this does not cover business liability or professional competence.