Prop firms make their money by the same way Retail trade brokers do, by commissions. What they do is provide you Leveraged Capital. Example: If you want to trade forex you can go to a retail place like FOREX.com and they will give you $100,000 to make trades with for every $10K you deposit. Well Prop Firms are much the same. You put in 5K into your account and they give you 30K or so of leverage. The big Difference is the regulations. When you apply to a Prop you are Applying for a Trading Job, you have to fill out SEC forms, Get your fingerprints taken and fill out other types of Tax and regulatory documents like a W-9.
Once you are excepted, you give them a deposit that is yours in the amount of at least $5,000 then they will START you out with a pre-defined level of risk captial. There computer systems also have built in risk controls. Starting out you can not loose more then $300 a day or 2% of your capital. If that happens then they cut you off ( this amount is also negotiable) and you can not trade anymore that day. You have to start anew the next day. With all prop firms you can trade from their office or you can trade remote ( from home ) that is what I did.
Prop firms are a good way to get around the Pattern Day trade rule if you have less than the $20,000 required by the SEC. But you really need to know how to trade Technically first.
Anyway to make a long story short I ended up loosing my deposit in about 4 months or so but gained a very very good understanding about how to DAY trade, technical analysis, Prop Firms, Leverage, Leveraged ETF, Market velocity, Leval 2 and the basics of different trading systems and styles. So instead of putting more money into my account with them I started trading SLOWER markets from my own retail account. I started trading again. I did well making about $1,500 in about 2 months or so. I gained more confidence and started learning about S&P eMini futures. I then started trading them and FOREX from my own account.
I would say that Prop trading is good if you want to trade stocks and you are a good profitable technical day trader. It is a good place to learn and get on a fast professional trading platform. Some Props do trade in FOREX or Options (Maverick Trading but they charge none refundable 5K for their training program). Prop trading is a business where the firm makes their money off of trading volumes and monthly software usage fees, this is ok as trading commissions or much lower then retail but if you want to learn to trade then make sure you look for a pro with a good educational program and those can be hard to find. If you were new and could work from their New York office, their would be other traders to teach you and who you could talk with, that is a big plus. I traded remote and learned on my own, which is hard, but learning to trade is hard no matter what you do. I am happy trading my own accoun. For me sitting and waiting and being disciplined to stick to my pattern without hesitation is the hardest part of this business.( It all comes down to simple probabilities) I am a swing trader but with that you are only going to get a few swings a day, some days none that are good probability and some day you get lots. You never know what the next day will bring, but if you have the Math on your side and you stick to it you will be destined to succeed