Revenue Models Used in Prop Trading Firms
When you think of prop trading firms, you usually focus on the trader’s journey. But behind the scenes, these firms operate on well-structured revenue models that balance risk and reward for both parties. Whether you are looking to start a career in prop trading or just want to understand how these firms stay profitable, it’s worth knowing how prop firms make money with their traders and not just from them. Here are the most common revenue models used by prop trading firms today.
Profit Split Model
This is the model most people know about. A trader passes an evaluation or challenge, gets a funded account, and keeps a portion of the profits that they generate. Most prop firms like Maven Trading operate on this model – they only win if you win. This works because it encourages traders to be consistent and conscious of risk while allowing the firm to scale by funding multiple profitable traders.
Monthly Subscription Model
Instead of challenge fees that are only collected one time, some prop firms offer a monthly membership fee. Traders pay a monthly fee to retain their access to a funded account, and firms earn recurring income to keep providing access to trading platforms, dashboards, and customer support. This model offers more stability for firms and can lower upfront costs for traders.
Spread Revenue Model
Some prop firms work with brokers or liquidity providers to earn revenue through the spreads. A spread is the difference between the buying and selling price.
Here’s how it plays out:
- Traders trade through the firm’s connected platform.
- Every trade generates a spread.
- The firm gets a cut from the broker and adds a markup on the spread.
Even if a trader breaks even, the firm might earn from trade volume.
Commission-Based Revenue Model
This model is similar to the spread revenue model, but is more focused on per-trade commissions. Traders are charged a flat or variable commission for each trade that they execute. The firm takes a portion of it and marks it up slightly. This model works best when the firm has traders who are active and place multiple trades per day.
Performance Fee Model
Some prop firms charge a performance fee when a trader withdraws profits. This can be in addition or in place of a profit split. For example, you make a profit of $10,000. The firm lets you keep 80% of it and takes the 20% as a performance fee. This model encourages traders to make higher profits and allows the firms to support traders long-term.
Conclusion
Understanding how trading prop firms make money helps you avoid scams and pick firms that actually want you to succeed. When a firm’s revenue depends on your performance, you can usually expect fair rules and better support for you as a trader. If you are planning to join a prop trading firm, look at their revenue model first. That alone can tell you whether they view you as a partner or just a customer.
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