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Prop firm now has two meanings, the original one just meant proprietary trading firm, which usually was some traders that got together, pooled their capital, or raised more capital, in order to bring new traders in and make profits using their proprietary trading system, which could be algorithmic or manual. If manual, there would be recruiting and training of new traders in the proprietary system and profits would be shared.

Modern day "prop firms" are more like casinos however, with extremely aggressive marketing targeting new traders. Potential customers are told to buy a sim trading package with the promise of funding if the challenge is passed, which usually is a profit target more than the loss, and the challenge is failed if the trader loses more than that or breaks any of numerous "rules" which for the most part don't exist in actual markets. Because the "account" is only a simulation these new "prop firms" are not subject to securities regulations, and many of them further give the customers little recourse for getting money out of the system by making their headquarters in jurisdictions that are notorious for secrecy. Many of these firms, just like casinos make hundreds of millions of dollars per year.