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Proprietary trading firms, simply known as prop firms, provide traders with capital to trade financial markets. Instead of spending their own money, traders use the firm’s funds and share a percentage of total profits. Almost all prop firms require traders to complete a prop challenge so they can assess a trader’s skills, risk management strategies, and emotional control. Knowing the phases of a prop firm challenge can help you better prepare and succeed.
Registration and Initial Setup
The first step is registering and selecting a challenge. Most prop firms offer a variety of account sizes, with funding starting as low as $2,000 and reaching up to $100,000. Each account comes with a fee, typically between $50 and $1,000. During registration, you also need to mention your preferred trading platform. Many prop firms inquire about your trading style. Make sure you read and understand the firm’s rules and policies to avoid any unfortunate surprises later on.
The Simulation Phase
The next step involves trading with a demo account using virtual funds. However, you will be required to trade under live market conditions with strict rules. Your main goal is to hit a profit target, typically between 8% and 10%, within a set number of trading days. Prop firms also impose daily loss limits, overall drawdown limits and minimum trading days.
Depending on your account size and previous trading history, a prop firm might also limit the types of strategies you can use. You can also choose between different prop challenge structures, including:
One-Step Challenge – This is a single evaluation phase where traders are required to adhere to risk rules.
Two-Step Challenge – It has an additional verification phase, often with a lower profit target in the second step.
Three-Step Challenge – It has two additional verification phases, with profit targets decreasing with every phase.
Evaluation
Once you have completed the prop firm challenge while following all the necessary regulations, the firm will evaluate your overall performance. The firm will assess your ability to follow rules, adapt to changing market conditions, and maintain consistency. Prop firms also focus on a trader’s emotional control. Success at the simulation level indicates that a trader can handle high-pressure trades responsibly.
Acquiring Funds
Once you have passed the challenge, you will receive a funded trading account and have access to the firm’s capital. Now you can trade real money with the firm earning profits. At this stage, adhering to drawdown limits and risk strategies is more important than ever. Any violations can lead to account suspension.
Scaling Up
Many prop firms allow you to scale up your funded accounts once you showcase consistent performance. The scalability feature can be an excellent opportunity for traders to meet their financial goals.
Conclusion
The path to becoming a funded trader is both exciting and challenging. From registering with a prop firm to passing the challenge, stay vigilant and consistent. By treating each evaluation phase seriously, you can set yourself up for lasting success in the world of prop trading.
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