Understanding the Concepts of 80/20 and 90/10 Profit Splits
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If you are delving into the world of proprietary trading (prop trading), there is one term you will hear often that has a direct impact on your earning potential: Profit Split.
Many traders who successfully pass the evaluation challenge and get a funded account often focus only on the large capital they receive. However, as a financial analyst, I want to invite you to look deeper into this profit-sharing structure. Understanding how prop firm profit splits work—especially common ratios like 80/20 and 90/10—is a fundamental step to determine if a prop firm is truly profitable for you.
This article will dissect the concept of profit split in detail, calculate your potential earnings at both ratios, and provide a careful guide to choosing the scheme that best suits your trading goals. Let's begin.
1. What Is Profit Split in the World of Prop Trading?
Simply put, a profit split is the agreed percentage between you (as a funded trader) and the prop trading company providing the capital.
Once you successfully obtain a funded account and generate profit from the capital provided by the company, that profit does not entirely belong to you. You will take a portion, and the prop firm will take a portion as compensation for the capital risk they bear and as their business model.
Prop trading is a partnership. The company bears the risk of loss (up to the set drawdown limit), while you provide the trading expertise. The prop firm profit split is the standard way to share the results of that partnership.
Why Do Prop Firms Apply Profit Splits?
The prop firm business model revolves around risk management. By taking a small portion of your profit (e.g., 10% or 20%), the company can:
- Cover Operational Costs: Technology costs, trading platforms, staff salaries, and other operations.
- Build Capital Reserves: A portion of the profit is used to cover losses from other traders who fail or violate rules.
- Provide Incentives: Favorable sharing ratios are a major attraction for talented traders.
If you are curious about where prop firms get their capital and profit from, you can delve deeper in our article: [Getting to Know the Prop Firm Business Model: Where Do They Pay Traders From?].
2. Dissecting the 80/20 Prop Firm Profit Split: The Industry Gold Standard
The 80/20 ratio is often considered the standard or starting point in most leading prop firms worldwide. This scheme offers a solid balance of risk and reward for both parties.
In the 80/20 scheme:
- 80% of Profit belongs to you (Trader).
- 20% of Profit belongs to the Prop Firm Company.
Example Calculation of 80/20
Imagine you have a funded account worth $100,000. In a one-month period, you successfully generate a net profit of $8,000 (after deducting commission/swap fees).
80/20 Profit Split Calculation:
- Your Profit (80%): $8,000 x 0.80 = $6,400
- Company Share (20%): $8,000 x 0.20 = $1,600
You will receive $6,400 as a payout (excluding registration fee refund if applicable on the first payout).
Advantages of the 80/20 Ratio
- Risk-Reward Balance: 80% is a very fair percentage considering you are using capital that is not yours and do not bear personal loss risks.
- Accessibility: Prop firms offering 80/20 usually have slightly looser challenge requirements or competitive registration fees.
- Industry Standard: Since this is standard, it is easier for you to compare the services of other prop firm profit splits based on rules rather than just the sharing ratio.
3. Exploring the 90/10 Prop Firm Profit Split: Maximum Payout Potential
The 90/10 ratio places more profit in the hands of the trader, making it a very attractive choice and usually sought after by professional traders who are very confident in their abilities.
In the 90/10 scheme:
- 90% of Profit belongs to you (Trader).
- 10% of Profit belongs to the Prop Firm Company.
Example Calculation of 90/10
Using the same example, a $100,000 funded account with a net profit of $8,000.
90/10 Profit Split Calculation:
- Your Profit (90%): $8,000 x 0.90 = $7,200
- Company Share (10%): $8,000 x 0.10 = $800
Compared to 80/20, you get an additional $800 ($7,200 vs $6,400) just because of the difference in the prop firm profit split ratio.
Conditions Behind the 90/10 Ratio
If 90/10 is clearly better, why don't all prop firms offer it?
Prop firms that offer a 90/10 ratio or even higher (some firms offer 100% at certain levels) often have specific conditions:
- Scaling Plan: The 90/10 ratio is usually achieved after a trader shows stable performance over a certain period and successfully scales up their account capital to the highest level (e.g., $400,000 or $600,000 account).
- Higher Costs: Some firms might offer 90/10 from the start, but usually with much more expensive challenge registration fees or stricter drawdown rules.
- Premium Account Types: This ratio might only apply to specific account types, such as Instant Funding accounts or elite programs aimed at traders with a proven track record.
If you are interested in finding out which prop firms offer ratios up to 100%, you can read this article: [Top 5 Prop Firms with the Highest Profit Splits (Up to 100%)].
4. Critical Analysis: 80/20 vs 90/10 Profit Split
As a researcher, I must emphasize that the profit split ratio alone should not be the sole determining factor in choosing a prop firm.
Although 90/10 mathematically gives you more money for the same profit, you must consider the total Net Payout after factoring in other elements.
| Consideration Factor | 80/20 Profit Split | 90/10 Profit Split | Implication |
|---|---|---|---|
| Profit Target | Generally 8%-10% | Often 10%-12% | Higher profit targets might make the challenge harder to complete. |
| Max Drawdown | Generally 10%-12% | Often stricter (e.g., 8%) | Stricter rules increase the risk of failure. |
| Registration Fee | Standard/Competitive | More expensive or Premium | The 90/10 ratio often demands a larger initial investment. |
| Payout Time | Often 14 days | Flexible, can be 7 days (for elite accounts) | Fund withdrawal speed is also important. |
Strategy for Choosing the Best Payout Prop Firm
- Prioritize Rules, Not Ratios: If a prop firm with a 90/10 ratio has overly strict daily drawdown rules (e.g., 3%), you will fail more often and never reach a payout. It is better to choose 80/20 which has looser risk management rules so you can trade more calmly.
- Consider Payout Frequency: If you are a consistent trader, a 90/10 profit split with weekly payouts can be very profitable.
- Look at Long-Term Scaling: Some prop firm profit splits offer 80/20 initially but promise an increase to 90/10 after you reach a certain funding level (Scaling Plan). This offers healthy long-term incentives.
Conclusion
Both 80/20 and 90/10 ratios offer extraordinary income potential for funded traders. Understanding the prop firm profit split structure is not just a matter of percentage; it is about analyzing the company's overall business model.
To start your trading journey wisely, focus on prop firms that offer the best combination of a fair profit split ratio (like 80/20 as an initial standard) and realistic risk rules. Remember, a 90% profit split is only valuable if you can actually reach the fund withdrawal stage.
By: FXBonus Team
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