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.

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.

Minimum deposit:

$1

Review

Topstep is a leading proprietary trading firm offering traders the opportunity to trade futures contracts. With a unique two-step evaluation process, traders can prove their skills on a simulated account before potentially receiving funding for live trading.
Topstep offers three account sizes: $50,000, $100,000, and $150,000. Regular pricing starts from $165/month, with frequent discounts available. Traders can leverage up to 1:100 and access diverse futures markets, including stocks, commodities, crypto, bonds, and metals. Commissions and fees charged on the Trading Combine (simulation account) align with those on a live funded account, helping traders develop skills for real markets.
Topstep supports traders with educational resources, including free group coaching, to enhance their chances of success.

Pros/Cons

•Real trading accounts are financed by a broker, there is no need to invest your funds in trading.

•The company provides a wide range of free training materials, including free group coaching.

•You can contact the support team using several convenient methods.

•The broker offers a referral program for extra income.

•The company doesn’t offer bonuses, automated trading, or other passive income options.

•The support service works only on weekdays during set hours.

Study Review

2

9.2/10

Go to broker

Your capital is at risk.

Minimum deposit:

€155

Review

FTMO is a prop trading firm offering experienced traders the chance to manage a funded account of up to $200,000 with a wide range of instruments including Forex, stocks, indices, commodities, and cryptocurrencies. To qualify, traders must pass a two-step evaluation process.
Beginners may start with a Free Trial account which has the same trading conditions as the challenge ones. Long-term traders are free to use a Swing Account that has no restrictions on holding positions over the weekend or trading during macroeconomic releases. The company offers trading with the most popular platforms – MT 4/5, cTrader, and DXtrade. The leverage is up to 1:100.
Additionally, FTMO is recognized for its educational resources and continuous support.

Pros/Cons

•Quite low testing cost is €155.

•Classic platforms such as MT4, MT5, and Ctrader are familiar to many traders. For these platforms, hundreds of indicators, scripts, and advisers have been developed.

•The starting reward is 80%.

•Diversification of tariff plans. Candidates can choose a demo deposit from 10 thousand to 200 thousand US dollars. There are tariff plans that span from standard to aggressive trading.

•Leverage is up to 1:100.

•Strict requirements for the test period. The allowable maximum loss is 10% of the deposit amount. The target profit is 10%, for which 1 month is provided.

•There is no information about how the company is funded.

Study Review

3

9.1/10

Go to broker

Your capital is at risk.

Minimum deposit:

$119

Review

Funded Trading Plus clients trade CFDs on currency pairs, indices, precious metals, energies, and cryptocurrencies. There are 18 programs with one- and two-phase challenges, or without evaluation. These programs also differ in initial fees, profit targets, maximum total drawdown, and other criteria. Traders can receive from $5,000 to $200,000 under management upon successfully passing the challenge or immediately if they choose the program without evaluation. Scaling up to $2,500,000 is available. The profit split is 80%/20% at the start and 90%/10% or even 100%/0% later. Traders work on MetaTrader 4 and MetaTrader 5. Leverage is up to 1:30.

Pros/Cons

•Wide choice of programs with universal parameters and acceptable requirements;

•One-time initial fee, refundable for programs with one- and two-phase challenges. No monthly subscription;

•Simple and understandable conditions, no hidden obligations, and profitable trading split;

•The prop firm partners with Eightcap and ThinkMarkets. It offers spreads from 0 pips and low trading fees;

•A demo account with $100,000 in virtual funds is available for exploring the trading process and instruments;

•24/7 technical support is provided via four communication channels;

•Deposits and withdrawals are made with Visa, Mastercard, bank transfers, and crypto wallets without fees.

•The Master program without evaluation is very expensive — a non-refundable initial fee of $4,500 is required for the balance of $100,000;

•Funded Trading Plus offers only CFDs without real assets or futures;

•The firm’s website contains much information, but some important nuances, like the reset fee, are not provided.

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