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I'm wanting to start a proxy website (a network to be precise). The trouble is, most hosts don't allow them and i'm just testing, so i don't really want to pay $5 per month for separate proxy hosting. Is there a good free proxy host that anyone wants to recommend?

I doubt many free hosts will allow proxies. Go to a hosting forum (such as freewebspace.net) and request free proxy hosting. Maybe someone can provide you with a package there.