If you have been thinking about finally trying your hand at prop trading, it’s time you start getting ready for those prop firm challenges. Most prop firms require you to pass an evaluation phase before they agree to fund you. But what does that phase actually look like? If you’re feeling unsure or overwhelmed, here’s your guide to breaking down what to accept during the challenge. Knowing what’s coming ahead can help you be more confident and strategic.
What Is a Prop Firm Challenge?
In simple terms, a prop firm challenge is like an audition or an interview. But instead of handing over your resume, you show off your trading skills. If you pass, you get access to the firm’s capital. Passing the challenge is where most traders get stuck. You’re not only expected to be profitable but also consistent within a strict framework.
Most prop firms usually offer two-step evaluation processes, which means once you pass the initial phase, you have to pass another one. Others just stick to a single phase, but some might even require three phases.
Phase 1
Here’s what the first phase usually involves:
- Profit target: You need to make a certain percentage of your starting balance in profit.
- Drawdown limit: You can’t lose more than a certain percentage of the total account. Some firms also add a daily loss limit.
- Time frame: You usually get 30 days to hit the target, but many traders finish early.
- Consistency: Some firms also require a minimum number of trading days or limit the number of high-risk trades. They want to see steady performance.
Phase 2
If you pass the first phase, you move on to the next. This is basically the same thing, but toned down a bit. The second phase involves a lower profit target with the same rules. Make sure to focus on consistency here. This phase exists to make sure that the first one wasn’t just a lucky win. Firms want to see and confirm that you can keep your cool over time.
What Happens After You Pass?
If you hit your targets without violating any rules, you get in and start trading with a live funded account. Some firms might offer simulated ones with real payouts. You’ll get to use real money and real stakes. Earn profits that are usually split between you and the firm. The higher percentage goes to you, the trader.
Common Rules to Follow
Some rules may seem minor, but they can cost you the challenge or your funded account. Watch out for news trading restrictions. Some prop firms either don’t allow you to open or close trades during high-impact news events or let you do so, but with restrictions and limits.
Also consider if they allow weekend holding. You might be required to close all positions before the market closes. Before you start the challenge, read the rules twice. Then read them again. Knowing the rules will help you trade smarter and avoid disqualification.
Conclusion
Prop firm challenges are hard, but they can be passed with the right mindset. Think of them like a test of your discipline. As long as you know the rules, respect risk, and control your emotions, you can pass.
