What is a Prop Firm Challenge: A Complete Guide For Beginners

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Arran Brough

Arran has been a professional trader for over 4 years. He manages a portfolio of over $6 million and he focuses on achieving small consistent gains over time. Throughout this time he has built a community of like minded traders where he helps them to make it in trading. He Loves surfing and travelling and this is what made him learn trading so that he could travel the world and earn money anywhere.

A prop firm challenge is an evaluation stage where you will often have to complete 2 trading challenges to prove your consistency in the markets. This is so the prop firms can identify skilled traders who are consistently profitable in the markets.

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What is a Prop Firm?

A Prop Firm is a company that enables you to trade with their money for a share of the profits. In order to gain access to these funds you have to prove to them you are capable of trading. If you are able to pass the challenge then in general you will receive up to 80% of the profit you make each month and some firms will let you trade with as much as $1million in funding.

What is a Prop Firm Challenge?

A prop firm challenge is an evaluation stage where you will often have to complete 2 trading challenges to prove your consistency in the markets. This is so the prop firms can identify skilled traders who are consistently profitable in the markets. Normally the challenges will involve reaching a certain profit target without breaking their max drawdown rule (this is often 10%).

Benefits of a Prop Firm Challenge

Increased Capital

By far the biggest incentive for passing a prop firm challenge is being able to trade with capital up to $1 million in some cases. This means you’re able to massively increase your potential earnings each month without having to risk a higher percentage per trade. An example of this is I personally make about 3% a month, which on a $1000 account would only make me $30, however with a $100,000 funded account I am able to take home an average of $2400 even after the firm has taken their 20%. Another benefit of having much larger capital is you don’t need to place as many trades a month in order to have amazing profits. I only trade 4 or 5 times a month but will win 80% on average which gives me a 3% overall gain. This is much more efficient than having to place loads of trades and also saves a lot of time and stress.

Reduce Risks

Although trading does always come with risks, the most you can lose on a prop firm challenge is the money it costs you to take the challenge in the first place. For example if you were to lose 10% of the funded account balance you wouldn’t have to pay any of that back, and they would just keep your initial challenge cost. This is far less risky than trading with your own capital where you could potentially lose it all!

Furthermore, most challenges are a one off payment of about $500 for a $100k account, so once you have made at least $500 back from one payout then you are completely risk free no matter what happens with the account after that. Personally I find that really helps with my trading mentality knowing I’m using the account risk free.

Gaining Insights

Another huge benefit of becoming a funded trader is being able to join a network of other funded traders. Talking to like minded skilled individuals can be a great way to rapidly improve your own skills. Being able to discuss possible trade ideas with other professional traders can give you the confidence you need to place the trade. Firms like FTMO even offer free performance coaching sessions where you can talk to their staff about your strategy and learn how you can improve as a trader.

Improved Risk Management

Personally I have found that having the increased capital really helps my risk management. When trading with my personal account I need to risk 5/10% in order to make it worth trading, however with a funded account I only need to risk 1% per trade to have a very good return. This also helps you to avoid blowing accounts as there is no need to place high risk trades in order to make good returns.

What you should be aware of before starting a Prop Firm Challenge

The main thing to ensure before you start a prop firm challenge is that your strategy works. I know this sounds obvious, but if you aren’t able to complete the firm’s challenges in a demo environment there is no point paying to take the challenge as you will lose your money. Also a lot of firms have recently moved to Ctrader as opposed to MT4 or MT5 so make sure you find a firm that uses a trading platform that you are familiar with. A very important thing to note is the fact that Prop firms do their best to block your payout if they believe you are copying forex signals rather than placing your own trades. If they see too many people placing the same trades they will assume you are using signals. There are ways round this, such as opening a trade a while after the signal is provided if for example it comes back to entry, or taking profits at different levels to the signal.

Tips on how to Pass the Prop Firm Challenge

Slow and Steady

I understand that most people will want to rush the challenge so that they can get access to the funding as quickly as possible, but the likely result of that is you over-trade and instead of becoming funded you fail the challenge and lose the challenge cost. It’s very important to look at this as a long term vision rather than a quick way to make money. My first prop firm took me 5 months to pass, but I still have that to this date.

Risk Management

Everyone speaks about risk management and I know it can feel boring only making 1 or 2% but this will help with your emotions during the trade. If you have over risked you are likely to cashout early and not let your trade hit full TP (Transfer Pricing), or you may cashout before the stop loss as you are scared of losing it all and it could reverse and come back to your TP. It is essential when placing a trade that you are happy with losing the full amount on that trade as that will allow you to relax if the trade isn’t immediately going your way.

Have a Consistent Strategy

Due to Prop firms limiting you to a 5% daily drawdown it’s important you have a high win rate trade strategy in order to avoid breaking their rules. What I have found is that placing trades with a higher R:R do not work as well on prop firms as you may lose a few before you get that one big winner. By the time you get the winning trade you may have already broken the drawdown limits. Of course this is personal preference but It is what has worked for me.

Using A HFT Bot

This is the only guaranteed way to pass a prop firm challenge, with this service you are able
to get funded within a matter of hours. However this only applies to HFT enabled prop firms such as Nova funding. Although be aware of the fact these firms do have more rules which makes trading them slightly more complicated.

Popular Firms that offer Prop Firm Challenges

Firms do come and go a lot so it’s important not to put all your funds into one firm as you could lose it all if they went down. A very useful site to check the latest updates on firms is Propfirmmatch. However I will list below my favourite firms at the time of writing this.

FTMO – This is my favourite firm and it is one I am personally funded by. They have been around for over 8 years now which gives them a lot of credibility. You get to keep 80% of the profits you make with them and they payout on a monthly basis.

Bespoke Funding – Although I don’t personally use bespoke, they have very good reviews and are known for paying out consistently. This is a firm I am looking to take on a challenge with in the very near future.

Nova Funding – This is by far the best HFT enabled prop firm in my opinion, so if you are looking to get instant funding then this is the way to go. However, bear in mind, HFT firms are not as reliable as normal trading firms. A trusted prop firm challenge passing service can help you get funded quickly.

How to choose the right Prop Firm Challenge for you

It is important to decide first whether you want to go down the route of instant funding with a HFT bot or if you want to complete the challenges yourself. Once you have decided that, the best thing to do is compare the current top firms on Propfirmmatch and also check all their reviews on TrustPilot as that will give you a good indication as to whether they are consistently paying out or not. A lot of firms also have a discord group you can join, and this will give you the chance to talk to fellow traders and see how their experience is with that certain firm.

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