While proprietary trading is less than a decade old, the market was already valued at $6.7 billion globally in 2020. The prop firm world is an amazing opportunity for seasoned traders to scale trading strategies without risking their own money—but you’ll need to pass a prop firm challenge first.
In this article, we’ll cover top tips to help you pass a prop firm challenge so you can start turning a profit.
What is a Prop Firm Challenge?
A prop firm challenge is a way for firms to see if you can handle trading their capital. It tests your ability to stick to strict risk management rules while hitting profit targets.
These challenges usually happen in stages, where you need to prove you can stay within drawdown limits. If you succeed, you get access to the firm’s capital and can start trading.
Stages of a Prop Firm Challenge
Initial Evaluation: A basic assessment of a prop trader’s skills where they are given a demonstration account with no real capital involved. Strict criteria will include how much profit they need to make and risk management thresholds.
Advanced Evaluation: The next stage for participants that succeed in the initial evaluation. This will be more challenging than the first stage, with even stricter rules in place and higher profit targets.
Funding Stage: Those who pass the first two phases successfully will be offered a funded trading account with a prop firm involving actual capital. The restrictions in place on these may vary from firm to firm.
How to Pass a Prop Firm Challenge
Mastering a prop firm challenge requires discipline, strategy, and a solid risk management plan. It certainly doesn’t come down to luck, but instead requires a specific, strategic approach.
Here are five key tips to help you successfully pass and secure funded trading.
1. Know the Firm’s Requirements Inside and Out
Before you even think about placing your first trade, take a moment to really understand the rules of the prop firm challenge. For example, Falcon Funded has a 7.5% profit target, and you don’t need to trade for a set number of days. However, this can be different for another firm.
However, we do have an 11% max drawdown and a 4% daily loss limit. There’s also a consistency rule; your biggest trading day can’t account for more than 45% of your total profits. A small slip-up can cost you the challenge, so do your homework.
Falcon’s Pro Tip: Know the key numbers like profit targets, drawdown limits, and time frames by heart so you can meet the firm’s expectations — think of a prop firm challenge as an exam, you’ll need to revise and prepare to pass!
2. Create a Tactical, Adaptive Trading Plan
A solid trading plan is essential for success. Define your strategy, risk rules, and goals, but remember that adaptability is key. The market is constantly changing, and what works in one condition might not work in another.
Prop firms want to see that you can adjust to market shifts, news, and volatility without abandoning your plan entirely. While consistency is important, it’s crucial to be flexible and adjust your approach as needed.
Falcon’s Pro Tip: Outline your entry/exit points, risk-to-reward ratios, and position sizing. This minimizes emotional decisions and keeps you focused.
3. Master Risk Management
For experienced market players, risk management is the backbone of consistent profitability. Prop firms want to see that you can handle larger capital, and sticking to strict risk management principles is critical to passing the challenge.
Firms need to know you can protect their capital while navigating the market, not just control risk on individual trades. Even profitable trades can be wiped out by poor decisions, so it’s crucial to stay disciplined.
Falcon’s Pro Tip: Keep your position size small, set stop-losses, and respect your daily loss limits.
4. Embrace the Value of Patience and Timing
In prop trading, sometimes the best move is to do nothing. Even after years of trading, seasoned traders can develop the tendency to act quickly when they feel the pressure to meet targets or prove their consistency.
The most successful investors know when to wait. Patience is about recognizing that the right opportunities will come. Rushing into transactions usually leads to unnecessary risks. Stick to your plan, focus on finding the right setup, and avoid forcing trades when the market doesn’t align with your strategy.
Falcon’s Pro Tip: When in doubt, wait. The market will always offer another opportunity, but rushing almost always leads to mistakes.
5. Avoid Overtrading and Overleveraging
It’s easy to get tempted to trade more or use leverage to go after bigger profits, but that’s a quick path to losses. Even experienced traders can fall into the trap of trying to make up for a loss or push for bigger returns. Prop firms value steady, calculated decisions over risky, impulsive moves.
Prop firms want traders who stick to their strategy, focus on quality deals, and avoid the urge to chase quick wins. Overtrading or relying too heavily on leverage can quickly eat into your capital. Keeping things steady and controlled is the key to long-term success.
Falcon’s Pro Tip: : Less is more. Focus on quality trades rather than quantity.
Ready to Trade?
If you’re looking to take your trading career to the next level without risking your own money, a prop firm is the perfect opportunity.
By understanding the rules, having a solid trading plan, and mastering risk management, you can tackle any prop firm challenge. With the right resources, you’ll be on your way to greater profitability in no time.
Ready to take on a challenge? Join Falcon Funded today and make the most of our flexible process and competitive profit splits.
