Prop Trading Challenge: How Does It Work?

Prop trading challenge explained

A prop trading challenge is a rigorous evaluation of a trader’s skills and strategies that is designed to determine if they are suitable for a proprietary trading firm. These challenges involve meeting profit targets within specified risk parameters and can vary in difficulty based on individual experience and skills. Learn about the best prop firm contests that provide a platform for traders to demonstrate their trading skills and strategies in real market conditions.

Passing a prop trading challenge can be difficult due to the high standards set by firms, making effective trading strategies and risk management skills crucial for success.

Potential participants include:

• Aspiring traders interested in algorithmic or quantitative strategies. The challenges provide a way to practice and showcase these skills

• Students and professionals looking to transition careers, The challenges serve as a valuable hands-on learning opportunity and networking event with prop trading firms

• Experienced traders seeking to be recruited by institutional firms. The challenges essentially serve as tryouts to earn a full-time trading position

Related terms for beginners

Building on the previous discussion, in order to understand the fundamentals of prop trading challenges, it is essential for beginners to become familiar with related terms such as margin, algorithmic trading, swing trading, and drawdown.

• Margin is the collateral that a customer deposits with a broker when using borrowed funds to purchase assets. The margin deposit acts as security for the loan taken from the broker to buy a financial instrument. Specifically, margin is the difference between the total value of assets held in a margin account and the loan amount from the broker

• Algorithmic trading is the use of computer algorithms and quantitative models to automate the execution of trade orders

• Swing trading is a type of short to medium term trading that attempts to capitalize on price movements over a few days or a few weeks

• Drawdown is a decrease in trading capital after a series of losing trades

How does prop trading challenge work?

Participants of the prop trading challenges usually go through the following stages:

• Application Process. Interested traders fill out an application with details of their trading experience and skills. Firms screen applicants to identify promising candidates. Sometimes a separate qualification test is held

• Virtual Trading Account. Participants get access to a demo account or paper trading account with virtual funds provided by the prop firm. They also receive the rules, account parameters, evaluation metrics, and timeline

• Trading Period. Over the challenge duration (usually 1-3 months) traders implement their strategies to grow the virtual account balance. Some challenges allow trading stocks, futures, Forex or other asset classes

• Performance Evaluation. Leaderboards track trader performance metrics like PNL, risk-adjusted returns, win rate, etc. Results are verified to prevent cheating

• Review & Selection. At the end, prop firms analyze the trading data to shortlist top performers for interviews and further selection

Risk management and continuous learning are key components of a successful prop trading challenge. Position sizing, stop-loss orders, and diversification can help manage risk. Analyzing trades and learning from mistakes is important for improvement. Adapting strategies based on market conditions is necessary in order to maximize profits.

Example of a prop trading challenge

Let’s take Traders With Edge as an example.

Traders With Edge is a proprietary trading firm that offers a comprehensive evaluation program designed to identify skilled and disciplined traders who demonstrate consistency, profitability, and risk management. The Turtle Challenge is a one-phase evaluation program that prepares traders for the funded stage.

The challenge has a participation fee of $55, and traders have unlimited free retries during the evaluation program. Traders must achieve a specific profit target of 10% while adhering to 5% max drawdown of initial capital and 2.5% max daily drawdown of equity.

Traders can use EAs and news trading, and weekend holding is allowed.

Once you pass the evaluation or challenge account, you can trade with a funded account.

If you are interested in other prop trading challanges feel free to read our article about Best Prop Firms With Challenge.

Best Prop trading firms

1

9.4/10

Go to broker

Your capital is at risk.
Your capital is at risk.

Minimum deposit:

$48

Review

Hola Prime is a trading company regulated by the Financial Services Commission (FSC) of Mauritius under license GB24203729 and has offices in six countries. The company was founded in 2024 and has evolved from a private community of professional traders that has been active since 2012. Hola Prime offers 1- and 2-stage challenges with account sizes up to $300,000, as well as direct funding options up to $100,000 that do not require a trading assessment. Traders can access up to $500,000 in capital with the support of a scaling plan that allows account growth up to $4 million. Hola PrimeThe company's services are available in more than 175 countries, including the United States.

Pros/Cons

•Wide choice of account types, including non-valuation models;

•Profit sharing up to 90-95% in favor of the trader;

•Access to scaling up to $4 million if performance criteria are met;

•No commissions on some assets (cryptocurrencies and indices) and spreads from 0.1 pips.

•The use of EAs (EAs) is prohibited on direct funded accounts;

•Not all account types support trading on news or holding positions on weekends.

STUDY REVIEW

2

9.2/10

Go to broker

Your capital is at risk.
Your capital is at risk.

Minimum deposit:

Package buy - $119

Review

SabioTrade is a proprietary (prop) trading company founded in 2021 in Dublin, Ireland. After completing a evaluation, the clients of the company receive access to $20,000 - $200,000 in funded accounts, with the profit split of up to 90%. A 7-day trial period. SabioTrade clients trade CFDs on currency pairs, commodities, indices, stocks, cryptocurrencies and ETFs on the platforms of the multi-regulated broker with leverage ranging to1:30, depending on the asset. Funding programs are available in countries not included in the OFAC sanctions list.

Pros/Cons

•Funding up to $200,000 upon passing the evaluation;

•The minimum Package buy is $119;

•All strategies are allowed, including trading on news events;

•One-time fee for using the evaluation account and a refund after the trader receives funding;

•The profit split is up to 90%;

•The maximum drawdown level is dynamic, not fixed;

•Coupons are available to reduce the one-time contribution.

•Each trader has only one attempt to pass the evaluation stage;

•Strict requirements for the daily loss limit which is no more than 3% of the account balance.

STUDY REVIEW

3

9.1/10

Go to broker

Your capital is at risk.
Your capital is at risk.

Minimum deposit:

$79

Review

Instant Funding is a proprietary trading company based in the United Kingdom that has been operating since 2021. It serves traders in more than 180 countries, including the United States. Trading instruments available include major and minor currency pairs, metals, commodities, indices and cryptocurrencies. Instant Funding offers One-Phase and Two-Phase assessment programs to obtain funded accounts ranging from $10,000 to $200,000, as well as instant funding from $1,250 to $80,000. The maximum allocation per operator after scaling can reach $2.5 million for One-Phase and Two-Phase challenges and $3.84 million for instant funded accounts.

Pros/Cons

•Single and two-phase challenges, as well as an instant funding program.

•Possibility to choose between a Raw Spread account or a commission-free account.

•High profit participation rate: 80% (base) or 90% (scalable accounts).

•Leverage up to 1:100 for major currency pairs.

•Algorithmic trading is not allowed.

•Higher one-time fee of between $79 and $89, depending on the challenge, compared to competitors.

STUDY REVIEW