How Prop Firm Challenges Work: What Traders Need to Know

Want to trade with big capital but only have a small account? That’s where prop firms (proprietary trading firms) come in. But before you can access their funds, most require you to pass a prop firm challenge.

Here’s how it works and what you need to know to succeed.

What Is a Prop Firm?

A proprietary trading firm (prop firm) allows skilled traders to trade the firm’s capital in exchange for a share of the profits—often up to 70–90%.
You don’t need to risk your own money beyond the upfront fee for the challenge.

Popular firms include:

  • FTMO
  • MyForexFunds (some changes recently)
  • The5ers
  • True Forex Funds
  • FundedNext

What Is a Prop Firm Challenge?

A prop firm challenge is a test that evaluates your ability to trade consistently, manage risk, and protect capital. It’s a simulated account with strict rules.

If you pass, you’ll earn a funded account where you trade real capital and keep a percentage of the profits.

Key Elements of Most Challenges

1. Profit Target

You need to reach a set return—typically 5–10%—within a certain period (e.g., 30 days).

2. Maximum Daily Loss

You cannot lose more than a certain percentage in a day, often 4–5%.

3. Maximum Overall Loss

Your total losses across the challenge cannot exceed 8–10%.

4. Minimum Trading Days

You usually need to trade for 5–10 separate days, even if you hit the profit target early.

5. Trading Style Rules

Some firms prohibit:

  • Holding trades overnight or over weekends
  • News trading (e.g., trading during major economic events)
  • Using high-frequency bots or copy trading

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