What is challenge?
A challenge is the paid evaluation a prop firm sells. The trader must reach a profit target without crossing the imposed loss limits, on a simulated account. Passing it gives access to a funded account.
The challenge is what a prop firm actually sells. Its price varies with the account size you are aiming for, but its structure is remarkably uniform from one operator to the next.
The standard mechanics
Phase 1 usually asks for a gain of 8 to 10 % of nominal capital, without exceeding a daily loss of around 4 to 5 % or a total loss set, depending on the firm, between 4 and 12 %. A minimum number of trading days is often added, meant to rule out the candidate who would hit the target in a single oversized position.
Two-phase formats add a second step with a reduced target, often half the first, and the same loss limits. Time limits, long set at 30 then 60 days, have largely disappeared among newer operators, replaced by minimum activity requirements.
What actually causes failure
The level of trading required is rarely the obstacle: a 10 % gain without losing 10 % is achievable for a competent trader. It is the peripheral rules that eliminate people — how drawdown is calculated, the consistency rule, restrictions around economic announcements, prohibited trading methods.
None of those rules are on the sales page. They are read in the terms and conditions, before you buy.
The real cost
The advertised price assumes you pass first time. That is not the most common scenario. The real cost includes the price of resets after a failure, any activation fee when moving to a funded account, and — for futures firms — a monthly subscription plus market data fees. Multiply the entry price by two or three: that is the figure to compare between two firms.
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Related terms
- Drawdown Drawdown is the maximum loss allowed on a prop firm account before it is closed. It is expressed as a percentage or a fixed amount, and calculated under three models — static, end-of-day trailing or intraday trailing — with very different consequences.
- Funded account A funded account is the trading account a prop firm allocates once the evaluation is passed. The trader operates under continuing risk rules and keeps a share of the profits, without ever holding the nominal capital.
- Profit target A profit target is the gain a trader must achieve to pass an evaluation phase. Expressed as a percentage of nominal capital, generally 6 to 10 % in the first phase, it is often halved in the second.
- Prop firm A prop firm is a company that gives access to a funded trading account after a paid evaluation. The trader deposits no capital: they pay evaluation fees, respect risk rules, and keep a share of the profits generated.
- Reset A reset restarts a failed challenge, charged at a rate generally below the initial purchase price. It relaunches the evaluation without buying a full account again, but is rarely refundable.