To be well-prepared when starting the evaluation process, you need to clearly understand the performance metrics and the firm’s policies. This process involves a thorough review of these factors, helping you select the right Prop Firm based on your trading goals and personal strategy. In today’s PF Insight article, we will discuss how does Prop Firm evaluation works and provide a step-by-step guide on how to participate. Let’s explore together.
What is Prop Firm evaluation?
Prop Firm evaluation is a process that proprietary trading firms use to screen potential traders before handing them over to manage a live account. The firm uses this process to ensure that only traders with a clear strategy, strong risk management, and discipline are given capital to trade large amounts of money. In other words, instead of providing immediate funding, Prop Firm wants traders to prove their abilities through a series of requirements, rules and challenges.
Why is an evaluation process needed?
Why is an evaluation process needed?
The purpose of the proprietary trading firm’s assessment process is to determine whether a trader can generate consistent profits while maintaining strict risk management. Proprietary trading firm traders must adhere to strict loss limits, implement prudent money management guidelines, and maintain a consistent trading style over a long period of time, as opposed to traditional trading.
Prop Firm reviews typically set profit targets that traders must achieve, while also strictly adhering to pre-set risk thresholds. For example, a firm may require a trader to earn 10% profit on a $50,000 account while avoiding a drawdown of more than 5%. Stability is also important, with the trader showing consistency and sustainability over the course of their trading career rather than relying on a few large trades to achieve their goals.
Time limits are another element of the assessment process. To qualify, traders must be active continuously for a certain period of time, as many proprietary trading firms have a minimum number of trading days. This is intended to prevent traders from adopting an “all or nothing” strategy, which involves taking excessive risks in an attempt to achieve a profit target in a short period of time.
Important criteria of the evaluation process
Important criteria of the evaluation process
You must understand the key components of the evaluation process to understand how does Prop Firm evaluation work:
Profit target: Traders must achieve a specific profit level within a time limit, such as 10% within 30 days. This is a common rule in Prop Firm challenges to assess a trader’s ability to generate consistent profits.
Drawdown management: This is the maximum loss that an account can withstand. To demonstrate effective risk management and safety in a trading strategy, a trader must keep the drawdown within the allowable threshold, usually between 5 and 6%.
Number of challenge rounds: Before providing actual capital, most proprietary trading firms usually provide 1 or 2 assessment periods to confirm the consistency in the trader’s trading performance.
Minimum trading days: To test traders’ patience and consistency in performance, some proprietary trading firms require a minimum trading period before being recognized as eligible for funding.
How does Prop Firm evaluation work?
You must follow these 5 steps to understand how does Prop Firm evaluation work:
How does Prop Firm evaluation work?
Step 1: Register an account and choose a capital package
The Prop Firm website allows traders to sign up directly and choose their desired capital package, such as $10,000, $50,000, or $100,000. Typically, traders will pay an entry fee to get started, which is usually refunded if they pass the assessment process.
Step 2: Challenge – First Challenge Round
Traders must meet a number of specific requirements as part of Prop Firm’s assessment process. This round typically tests a trader’s capital management and trading strategy by imposing conditions on timeframes, risk limits, and profit targets.
Timeframe: Usually 30 days.
Profit target: 8–10% of account value.
Loss Limit: Risk limits apply to both daily losses and total maximum losses (e.g. 10% of total capital and no more than 5% per day).
Other Requirements: Additional requirements include adhering to lot size guidelines and preventing balances from exceeding the allowed negative threshold.
The challenge is considered a “hard test” in which traders must demonstrate their ability to make consistent profits over a period of time. This rigorous testing period assesses trading discipline, patience and risk management.
Step 3: Verification – Verification phase
The trader will move to the verification phase after completing the challenge. This phase includes the following criteria:
Time: Usually 60 days.
Profit target: Lower, ranging from 4–5%.
Purpose: To verify whether the trader can maintain stability and discipline over the long term.
During this stage, Prop Firm wants to ensure that the trader is not only lucky in the Challenge round but also has stable trading skills, discipline and can maintain long-term performance before being officially sponsored.
Step 4: Funded account – Real account
After completing the challenge, the trader will be given a real account to trade with. Any profits made will then be split between the trader and the company according to an agreed ratio. Common splits include 70/30, 80/20, and in some reputable companies, 90/10.
Step 5: Capital management and profit withdrawal
Traders can withdraw profits based on the company’s prescribed cycle. Additionally, many companies use a Scaling Plan, which allows traders to manage larger accounts while maintaining stable and consistent performance over time.
Methods to help traders conquer the Prop Firm evaluation process
To pass the Prop Firm assessment process, you need to keep in mind the following factors:
Methods to help traders conquer the Prop Firm evaluation process
Build a stable trading strategy
Maintaining a funded account and evaluating a Prop Firm effectively depends on having a clear trading strategy. Many traders fail due to lack of discipline and failure to stick to a set strategy, not due to lack of skill or market knowledge. Therefore, to overcome the challenge of Prop Firm, it is important to note:
1% rule and withdrawal limits: Proprietary trading firms often impose strict withdrawal limits, forcing traders to carefully monitor risk in every trade. To minimize the possibility of account burnout in case of consecutive losses, it is recommended to risk no more than 1% of total capital per trade. To prevent excessive risk, position size must also be adjusted flexibly to respond to market fluctuations.
Clear entry and exit strategies: To find high-probability opportunities, traders must combine price action signals, technical indicators, and market fundamentals. Exit rules should clearly state profit targets, stops, and take-profit levels, while entry rules should be based on proven strategies. This approach minimizes unnecessary risk and maximizes profits.
Realistic profit targets: Traders should set reasonable daily or weekly goals to grow their account while managing risk, rather than aiming for huge profits in a short period of time. It is important to maintain consistent performance over a long period of time, in addition to passing the assessment. This is also why many proprietary trading firms require a minimum number of trading days before officially funding a trader.
Psychological discipline: Many traders fail in the evaluation process not because they are bad, but because they overtrade, fall victim to “revenge trading” or abandon their strategy after a few losing trades. Patience, emotional control and a long-term vision are the factors that separate the successful from the unsuccessful. To improve, traders should develop the habit of planning before trading, keeping a journal and analyzing, and reviewing the trades they have made to maximize their strategy.
Control risks and keep capital safe
Overcoming challenges and maintaining a funded account depends heavily on risk management. Many traders mistakenly believe that success is easier if they make more money. However, this strategy often leads to significant risk and rapid failure. In fact, proprietary trading firms favor disciplined traders who understand good money management and generate consistent profits over those looking for big, quick profits.
Compared to traders who only use risky strategies to try to make big but inconsistent profits, those who consistently make safe profits and manage risks are more likely to succeed in the evaluation process to get funding.
The most important principle for traders in proprietary trading is capital preservation. A few uncontrolled orders can wipe out an entire account as the evaluation process often has very strict loss limits. To increase the likelihood of long-term success, traders should prioritize capital preservation, minimizing losses and maintaining stability rather than focusing on making quick profits.
Setting a risk limit for each trade, using appropriate stop-loss orders, and avoiding overtrading are all essential elements of a well-defined risk management strategy. When traders ignore these principles, they often become emotionally unstable and try to recoup losses by placing more orders, ultimately leading to a more severe drawdown of the account.
On the other hand, traders will be able to maintain steady performance and long-term profits with a methodical and patient approach, closely controlling small risks. Traders will have a better chance of passing the Prop Firm assessment process and the long-term stability and sustainability of their funded accounts if they consider capital preservation, risk management and discipline as top priorities in every trading decision.
Conclude
How does Prop Firm evaluation work? The purpose of the Prop Firm evaluation process is to identify and select traders who are truly competent, disciplined and have the ability to manage money effectively. This is not an easy task, requiring patience and thorough preparation. However, traders can use this process as an opportunity to assert their skills and build a long-term trading career if they have a clear strategy, sound risk management techniques and a solid mindset.
Frequently asked questions
What common challenges arise during the assessment process?
Overtrading, exceeding loss limits, and making decisions based on emotions instead of strategy are the most common challenges.
What happens if you fail the challenge?
Traders can choose to start over with a new review round or pay a fee to reset.
Can I trade automatically?
To ensure traders are truly skilled, some Prop companies prohibit EAs or bots, while others allow them.
What is the profit withdrawal process?
Payments are typically made bi-weekly or monthly, with a minimum profit threshold required before withdrawal.
How can I increase the capital in my account?
Capital expansion programs, which allow traders to handle larger amounts of money, are usually for those who maintain steady profits and adhere to risk management principles.
