How prop firms make money
The evaluation model, the three flows of money behind it, and the line between what firms state and what can be verified.
Kernwell Research Desk · 2026-09-17
Key takeaways
- The evaluation-based proprietary trading firm is a business model in which the customer is the trader, not the market. Understanding where the money comes from explains most of the rules.
- Kernwell has not verified the revenue, payout or pass-rate figures of any individual firm. Where this piece describes economics, it describes the structure of the model, not the results of a named company.
What the model is
A trader pays a fee to attempt an evaluation: trade a simulated account within rules (a profit target, a maximum loss, a daily loss limit, sometimes a consistency rule). Passing leads to a funded or simulated-funded account in which the trader keeps a share of profits and the firm keeps the rest.
Three flows of money follow from this structure:
- Evaluation fees, paid whether or not the trader passes.
- Recurring fees on funded accounts, where a firm charges them.
- The firm's share of profits paid out to traders who succeed.
Whether a firm places funded-account trades in real markets, hedges some of them, or keeps them simulated is a material fact about the model that varies by firm and is not always disclosed. It should be established from the firm's own terms, not assumed. Topstep, for example, states in its risk disclosure that its programme runs in a simulated futures trading environment, that simulated results do not represent actual trading, and that a trader may later leave simulated trading for a live trading environment through a Topstep funded account.[1]
Why the rules look the way they do
Rules that are commonly presented as risk management also shape the economics:
- Daily loss limits and trailing drawdowns increase the probability that an evaluation ends before a target is reached.
- Consistency rules limit how much of a target can come from one session.
- Time limits and inactivity rules cap how long a fee buys.
None of this makes a rule improper. It does mean that pass rates, not trading skill alone, determine the firm's revenue, and that a reader should treat a firm's rules as part of its pricing.
What is verifiable and what is not
Company-reported payout totals are marketing statements until they are independently verified. Kernwell's standard for this category is to phrase them as such: a firm states that it has paid a figure; Kernwell has or has not independently verified it. Regulatory status, corporate registration, and published terms are verifiable from primary records. Estimated revenue is an estimate with a stated method or it is not published.
What remains unknown
Industry-wide pass rates, average time-to-payout, and the share of funded accounts that are real versus simulated are not established by public primary evidence known to Kernwell at the time of drafting. This piece states no figure for them.
Evidence & methodology1 source · published 2026-09-17
Primary sources
Filings, regulators, courts, exchanges, datasets, papers, original transcripts.
- [1]Topstep — Risk Disclosureweb page · retrieved 2026-09-17 · Risk Disclosure (updated 2025-09-25)
Methodology
Structural description of the business model. No named firm's figures are used. Material claims that would quantify the model are tracked as claims awaiting primary sources.
Limitations
Industry-wide pass rates, payout timing and the real-versus-simulated composition of funded accounts are not established by public primary evidence known to Kernwell at the time of drafting. This draft cannot be approved until each such claim has a source or is removed.
Entities & topics
Kernwell Research Desk separates verified facts, company claims, third-party claims, estimates and its own analysis. Research and education, not individualised investment advice. Version 3.
