Risk: Prop challenges, including futures prop firms, are paid tests: most people don’t pass, the fee is usually lost, and funded accounts are usually simulated.
Stage 5: Getting Ready for a Prop Challenge · Module 15 · Lesson 1 of 12 · Back to the prop challenge stage · Course
You’ve probably seen the adverts: “Trade our $100,000 account”, “Keep up to 90% of the profits”. A prop firm (short for proprietary trading firm) sells you a test – usually called a challenge or evaluation – on a simulated account. Hit a profit target without breaking any rules and you get a “funded” account, where you can earn a share of the simulated profits as payouts.
This lesson explains how that model works and, above all, the rules. Most challenges don’t fail because the trader picked the wrong market. They fail because a rule was broken – often in a single day.
How the business model works
- You pay a fee for an evaluation of a given account size (for example, a “£10,000” or “$100,000” account). Bigger accounts cost more.
- You trade a simulated account with fictional money, using real market prices.
- If you pass, you move to a funded stage – which, at most firms, is also simulated. You earn a profit split of any simulated profits, paid out by the firm under its terms.
- If you break a rule, the account is closed and the fee is gone. Many firms then offer a reset or a discounted retry.
For most firms, a large part of the revenue comes from evaluation fees. That’s not a secret – it’s how the model works – but it’s worth keeping in mind whenever you read a firm’s marketing. Some firms publish their own pass rates; we look at those figures, and what they mean for you, in the next lesson.
Phases: one-step, two-step and “instant”
| Type | How it usually works |
|---|---|
| Two-step | Phase 1 has a higher profit target; phase 2 a lower one. Pass both to get funded. |
| One-step | A single phase, often with tighter drawdown rules. |
| Instant / direct funding | No evaluation, but usually a higher fee and stricter rules or lower payout caps. |
Details vary a lot between firms and change often. Always read the current rules on the firm’s own website, and save a copy on the day you buy.
The rules that matter most
1. Profit target
The amount of profit you need to pass a phase, usually set as a percentage of the starting balance. Targets in the region of 5–10% per phase are common. A 10% target on a £10,000 account means making £1,000 of simulated profit – without breaking any of the rules below.
2. Daily loss limit
The most you’re allowed to lose in a single trading day, often around 3–5% of the starting balance. Break it, even for a moment, and the challenge usually ends. Three details trip people up:
- What it’s measured from. Some firms measure from the day’s starting balance; others from the higher of balance or equity at the start of the day. If you carried an open profit over from yesterday, that can shrink today’s room.
- Whether open losses count. Usually they do. If a trade is temporarily £450 down on a £500 limit, you’re £50 from failing – even if it later recovers.
- When “the day” resets. Often at midnight in the firm’s server time zone, which may not be midnight UK time.
3. Maximum drawdown (maximum loss)
The most your account can fall in total, often around 6–10%. Here, the type of drawdown matters enormously:
- Static drawdown: fixed from the starting balance. On a £10,000 account with a 10% static limit, you fail if equity ever drops below £9,000 – whatever happens in between.
- Trailing drawdown: the limit moves up as your account makes new highs (sometimes based on intraday equity, sometimes on end-of-day balance), and usually stops trailing at some point. Make profits, give some back, and you can fail while still in profit overall.
4. Minimum (and maximum) trading days
Some challenges require a minimum number of days with at least one trade. Some have a time limit; many now don’t. A time limit adds pressure to force trades.
5. Consistency rules
A consistency rule limits how much of your profit can come from one day or one trade – for example, “no single day can be more than 30–50% of total profit”. It’s designed to stop one lucky trade passing the challenge. It can also block a payout after the fact if you didn’t read it.
6. News, weekend and strategy rules
Firms may restrict trading just before and after big news releases, holding trades over the weekend, or certain strategies (such as high-frequency trading, copying trades between accounts, or exploiting price delays). Breaking these can void a pass or a payout, even if every number looked fine.
Worked example: a two-step challenge (illustrative numbers)
All figures are made up for teaching purposes. They aren’t any firm’s real rules or prices. Many firms price accounts in US dollars; we use pounds to keep the maths simple.
| Rule | Example setting | On a £10,000 account |
|---|---|---|
| Fee | £90 | – |
| Phase 1 target | 8% | £800 profit |
| Phase 2 target | 5% | £500 profit |
| Daily loss limit | 5% of the initial balance, measured from each day’s starting balance | £500 a day |
| Maximum loss | 10% static | Equity must stay above £9,000 |
| Minimum trading days | 4 per phase | – |
| Consistency rule (funded stage) | Best day ≤ 40% of total profit | – |
Day 1: you make £300. Balance £10,300.
Day 2: you open two trades on correlated pairs, each risking £200. Both go against you quickly. Your equity drops to £9,820 – that’s £480 below the day’s starting balance of £10,300. You’re £20 from breaking the daily loss limit, even though you’re still down less than 2% overall. If one trade slips another 2 pips, the challenge is over and the £90 is gone.
Now the same story with trailing drawdown. Suppose the maximum loss is a 6% trailing limit (£600) based on the highest equity reached. After Day 1, your equity peaked at £10,350 during the session, so the floor moved up to £9,750. On Day 2, the floor isn’t £9,000 any more – it’s £9,750. The dip to £9,820 leaves you just £70 above it. Your account is barely below where you started, yet a £600 drop from the peak would end the challenge.
Futures prop firms: what’s different
Many prop firms that cover US markets use futures rather than CFDs. In general (each firm’s rules differ and change, so always check the current rules):
- Monthly fees. The evaluation is often a monthly subscription, so the longer you take, the more you pay. Activation and reset fees are common.
- Trailing drawdown. Instead of a fixed floor, the maximum loss limit usually moves up as your balance reaches new highs – sometimes counting open profit (intraday trailing), sometimes only closing balances (end-of-day). It often stops trailing once it reaches a set level.
- Contract limits rather than lot sizes, with micros often counted at a ratio to minis.
- Flat by the close. Many require all positions closed before the daily break, so there’s no overnight or weekend holding.
- Consistency rules that cap how much of your profit can come from one day.
Hypothetical example: on a $50,000 futures evaluation with a $2,000 intraday trailing drawdown, a trade that’s $800 in profit and then closes at break-even leaves you with $1,200 of room, not $2,000. See 1F.10 Futures prop rules.
What a “funded account” usually is
At most firms the funded account is still simulated. You aren’t trading the firm’s real money in the market; the firm pays you under its own terms based on your simulated results. Some firms say plainly that their accounts are demo accounts with fictitious funds. A few move a very small number of traders to live capital. Payouts usually depend on identity checks, minimum profit levels, payout schedules and a clean rule record. We’ll cover this in detail in Simulated vs live funded accounts.
Common mistakes
- Not reading the rules in full – especially how the daily loss and drawdown are measured.
- Forgetting open losses count. A trade that “would have come back” can still fail you.
- Assuming midnight UK time is when the day resets.
- Ignoring consistency rules until a payout is refused.
- Treating leverage as permission. Challenges often allow more leverage than UK retail brokers. That’s not a reason to use it.
How this links to the rest of the course
Every rule here connects to something you’ve already learned or will learn: drawdown maths and daily loss limits (Module 8), correlation (Lesson 1A.3), and the pressure of trading under these rules (Prop firm challenge pressure).
Key takeaways
- A prop challenge is a paid test on a simulated account. Pass, and you can earn a share of simulated profits; fail, and the fee is usually gone.
- The rules – profit target, daily loss limit, maximum drawdown, minimum days, consistency, news and strategy rules – decide most outcomes.
- Read exactly how each limit is measured: balance or equity, open losses, reset time, static or trailing.
- Funded accounts are usually simulated, and payouts depend on the firm’s terms.
Quick quiz
- What usually happens to your fee if you fail a challenge? (It’s lost. Some firms offer a paid reset or retry.)
- A daily loss limit is 4% of a £20,000 starting balance. How much can you lose in a day? (£800.)
- What’s the difference between static and trailing drawdown? (Static is fixed from the starting balance; trailing moves up as the account makes new highs.)
- Do open (unrealised) losses usually count towards the daily loss limit? (Yes, at most firms.)
- What does a consistency rule do? (Limits how much of your profit can come from a single day or trade.)
Key terms
Prop firm · Evaluation · Profit target · Daily loss limit · Max drawdown · Static drawdown · Trailing drawdown · Consistency rule · Funded account · Simulated account · Profit split · Payout
Try this
Pick the published rules of any one challenge (you don’t need to buy anything). Answer these eight questions in writing: (1) the fee; (2) the profit target per phase; (3) the daily loss limit and whether it uses balance or equity; (4) when the trading day resets, in UK time; (5) maximum drawdown, static or trailing, and how it trails; (6) minimum and maximum days; (7) any consistency rule; (8) news, weekend and strategy restrictions. If you can’t find an answer, write “unclear” – that’s useful information about the firm.
FAQ
Is a prop firm challenge gambling? It’s a paid test of your trading. But if you take one without a tested strategy and strict risk rules, the outcome is mostly down to chance – and the odds are against you.
Are prop firms regulated in the UK? Generally not by the FCA, because they say challenges on simulated accounts aren’t regulated investment business. That means you usually don’t have FCA, FSCS or Financial Ombudsman protection for fees. We cover this in Are prop firms regulated in the UK?
Which prop firm is best? We don’t recommend firms in our lessons. Compare rules using the eight questions above, and read the next lesson on odds and costs before you spend anything.
Disclaimer: This page is general education, not financial or investment advice or a personal recommendation, and it doesn’t take your circumstances into account. Examples are hypothetical, for illustration only, and not an invitation to buy or sell. Learning a strategy doesn’t guarantee profits. Past performance is not a reliable guide to future results. Futures, spread bets and CFDs are complex and carry a high risk of losing money quickly because of leverage, and most retail traders lose money. With a real futures account, losses can exceed your deposit. Prop firm challenges are paid evaluations: the fee is usually lost, and funded accounts are usually simulated. Only trade with money you can afford to lose, and speak to an independent FCA-authorised adviser if you’re unsure. Read our full risk warning.