Proprietary trading firms, commonly known as prop firms, are specialized financial institutions that trade in various markets such as stocks, bonds, commodities, and Forex using their own capital. These firms employ traders to invest and generate profits, which complements their other activities like managing client portfolios and providing investment services.

In recent years, online prop trading firms have become prominent. They differ from traditional prop firms in that they provide traders with direct access to markets and the necessary capital, without acting as intermediaries. This model places the onus on traders to be well-versed in market dynamics, risk management, and trading strategies, as well as understanding their own trading psychology.

To support traders, prop firms offer resources like capital and demo accounts that simulate live market conditions. When traders execute trades in these demo accounts, the firm replicates them in the actual market, taking on the risk of profit or loss.

However, entering the world of prop trading is not straightforward. Aspiring traders must undergo a stringent evaluation process, often referred to as a "challenge," and usually pay an upfront fee. This process is designed to assess whether a trader has the necessary skills to trade responsibly and profitably, considering the significant risk the prop firm assumes by providing its capital for trading.

The popularity of prop firm challenges has increased notably since the pandemic in 2020. 

Firms like FTMO are known for these challenges, which offer traders the chance to trade with the firm's capital and potentially earn higher profits. 

The rigorous nature of these challenges ensures that only skilled traders are accepted, thereby reducing the financial risk for the prop firms. This has led to a growing interest in prop firm challenges among those looking to enter or advance in the trading industry.