If you want to become a prop firm trader, you will need to choose between an instant funded account or an evaluation account. If you pick an evaluation account, you will need to pass an evaluation, also called a challenge, in order be accepted by the prop firm and given a funded account.
You will notice that taking an evaluation requires paying a fee. So, there is an immediate sunk cost. For that reason, you need to make sure that you are going into any prop firm challenge prepared. This guide will go over some important things to know before you dive in with your first evaluation.
What is a Prop Firm Evaluation or Challenge?
Before a forex prop firm feels comfortable giving you a funded account, they need you to demonstrate that you can trade profitably. So, they assign you an evaluation with a target profit, and sometimes, a time limit.
During the evaluation, you trade in a demo account, carefully following the rules of the challenge. If you are able to achieve the challenge goals, then you pass, and are given a funded account. If you fail to achieve the goals for the challenge, then you fail the evaluation, and do not receive a funded account. You may be able to pay another fee to retake the evaluation, however.
What to Check Before Attempting a Challenge
How can you make sure you do not waste time, money and energy on evaluations? One tip is to be selective about which challenges you attempt. Below are some things you should look up before you begin an evaluation.
Fee Structure
The traditional fee structure for an evaluation account is a one-time fee for each challenge attempt.
But there are some prop firms that use a monthly subscription model instead. With this structure, you sign up for an evaluation account. You are charged a fee each month until you either pass the challenge or you quit and cancel.
Challenge Rules and Restrictions
One of the things that makes it so hard to pass evaluations is that they usually come with quite a few rules and restrictions.
- You may be confined to certain lot sizes.
- Some prop firms do not allow you to trade the news. This limitation may apply to the challenge, funded accounts, or (most likely) both. Needless to say, if your entire strategy involves trading the news, you will have to look elsewhere.
- You may have to trade a minimum number of days. If you fail to trade that many days, even if you are profitable, you could fail the evaluation.
- You might be restricted from holding positions over weekends. This would be an issue if you are a position trader, or even sometimes an interday trader.
- Some firms might not allow you to trade during periods when liquidity is low.
- There may be a time limit (see below).
Timed or Not?
A time limit is one of the most challenging aspects of a forex prop firm evaluation for a lot of traders. For one thing, your system may simply not be built for a time limit. If you need more time than you’re given to turn a profit, you will have to find another firm that does not impose a time constraint on you.
Let’s say your system can feasibly hit the profit target in the allotted time. Even then, a time limit may still be hard to deal with. Knowing you have a time limit may make you feel pressured and rushed. As a result, you might trade differently than you would under normal conditions. That means you could make more losing trades.
In addition, many traders simply do not appreciate the added stress that goes with a time limit. It is already anxiety-inducing enough to pay a fee and then have to pass a challenge or lose your money.
This does not mean you can never take challenges that are timed. It just means you should carefully weigh whether it is worth it to you. If it isn’t, then look for a firm that lets you take a challenge that is not timed.
Can You Try Again?
Before you commit to paying a fee and taking an evaluation for a prop firm, check to see what the policy is if you fail.
Many traders fail the first time they take an evaluation. Most firms will let you retake the evaluation if you do not succeed.
See what the charge is if you do take it again. Do you have to pay full price? Is there a discount? Is it free? Is there a limit to how many times you can retake it? Do you have to wait to retake it?
It’s commonly advised that you should consider the “true” cost of applying for prop firm accounts before you get started. You can only take a guess what that will add up to. But you should pretty much walk into this endeavour expecting to fail at least a couple of times.
Take Evaluations that You Know You Have a Chance of Passing
Now you should have a pretty good idea what to expect from forex prop firm challenges. Let’s review briefly:
- To get a funded account with a prop firm, you may be required to complete an evaluation/challenge. You will have to achieve the target profit to pass. Some prop firms offer multiple tiers of challenges for various account sizes.
- Both one-time fees and subscription-based pricing are available for prop firm evaluations.
- Some evaluations are timed, while others are not.
- There are a variety of rules and restrictions that can apply to evaluations. If you break the rules, you do not pass the evaluation.
- Most forex traders do not pass on their first attempt, so costs can add up.
- The rules for a given evaluation may make it unsuitable in some cases for certain trading systems.
Given all of the above, it is very important to take the time to look up the rules and fee structure for any evaluation you are thinking of taking and understand both in full. Make sure that the challenge you are contemplating is one that you have a real chance of passing. If it is, feel free to go for it. If it isn’t, keep looking. There are tons of prop firms out there. Somewhere, you will find an evaluation you have a good shot at passing.
