Prop Firm Evaluation Challenge Explained: The Meaning, Essence, Advantages and Disadvantages
One of the prevalent status quo in Prop Trading is The Evaluation Challenge which most prop companies require traders to pass before being offered a live account at which point a trader is entitled to a share of the profits made.
This post lives up to the tin by examining the meaning of The Evaluation Challenge, its essence, advantages and disadvantages. How about I make you a promise before you start? At the end of your reading, you will be closing this page better informed and even wanting more.
Prop Trading : The Place of Evaluation Challenge
Prop Trading has rightly emerged as one of the leading ways of making money and improving your financial status in little or no time. Here is a truth that already beats fallacy and transcends fantasy: tons have had their lives changed from lame wishes to living their dreams by engaging in prop trading. If you admire and wish to belong to that class, then in prop trading, you are on the right path.
One of the things that marks prop trading out as an efficient way of money making is the maximum financial security it offers like no other. How do I mean?
- You don’t need your capital to commence trading, a viable financial institution (prop firm)does that.
- Since it is not your capital, you are let in on the opportunity of trading tons of money than you could ever make by your hardwork in a lifetime, up to as much as $4,000,000. Now, how many people both in the past and present or even future will make up to that in a lifetime?
- Again, since it is not your capital, you are entirely shielded away and protected from bearing any responsibility for whatever loss is incurred in the process of trading. Isn’t that mind-blowing? Hold your breath as I break open the last juicy piece.
- Despite the fact that you are not trading with your money and not responsible for any of the incurred losses, you are entitled to a share of the profits made, and in most cases the lion share. Mind-blowing, isn’t it?
The next question that begs for answer is simply this, “All for nothing?!”
Errmm…it’s almost all for nothing except for a hurdle: The Evaluation Challenge and its intricacies.
What is Prop Firm Evaluation Challenge?
Meaning, Essence, and Intricacies of Prop Firm Challenge
Prop Firm Evaluation Challenge is a carefully configured scrutiny procedure designed by prop firms by which intending traders are tested to assert, affirm, and verify their suitability and expertise to trade a prop firm’s capital and other trading instruments.
Simply put, the Evaluation Challenge is the examination process that intending traders must pass before they are given capital to trade with.
WHY DO PROP FIRMS REQUIRE EVALUATION CHALLENGE?
ESSENCE OF PROP FIRM EVALUATION CHALLENGE
The essence of the Evaluation Challenge is subsumed in the definition: to verify and ascertain the skills of an intending trader before committing capitals into their hands. This is not something novel to corporate affairs. Companies scarcely offer employments to people except they have proven themselves worthy. This is the actual essence and thought behind conducting various interviews before the organization commits their funds, facilities and equipments their hands.
That analogy, verbatim, is the best way to understand The Evaluation Challenge of prop firms. It is hence a carefully crafted program to test traders’ skills, trading intelligence, knowledge of the market, profitable decision-making, discipline and lots more.
Rather than summon traders for physical interviews which could be overbearing for traders from various parts of the world, or organizing virtual interviews which wouldn’t be really effective when measured in the light of all that’s at stake, the Evaluation Challenge emerges as the best bet.
INTRICACIES OF PROP FIRM EVALUATION CHALLENGE
To commence an evaluation challenge by any prop firm, the following are necessary:
1. Selecting an Account Size You Would Like to Manage:
This is on the premise that you have made the choice of a prop firm to trade with. If you need help choosing a viable prop firm, you can read my post made specially for you below:
READ: 10 Things to Look out For When Choosing a Prop Firm
Having selected a prop firm, take a careful look at their available account sizes and decide the one you can afford. You can begin with a low account while counting on your trading expertise and experience as you learn on the job to scale to even larger accounts at no extra cost.
2. Pay the Subscription Fee:
You are to make the subscription fee accrue to the account size you would love to manage. This subscription fee varies from one firm to the other. Another thing you have to look out for is whether the payment is one-time or monthly. One more thing to carefully observe is whether or not the prop firm offers a refund of the subscription fee at the end of the challenge.
The important thing is just to be so clear before you begin at all.
To check out the profiles of 20+ prop firms from which I’m confident you’ll find a suitable choice, click the link below:
READ: Prop Firm Profiles
3. Validate Payment and The Demo Account Login Parameters:
After making a successful payment, apart from the payment receipt, the ultimate proof that your payment is successful is the login parameters of a demo account with which you will be provided.
The demo account is an account with a digitally funded account with electronic money. Just as the name implies, it is not the real deal, not a real account in this case. However, with this account, traders can conduct trades, meaning they are exposed to the profit-making and loss-incurring experience.
4. Understanding the Terms and Conditions of The Demo Account
It is essential that traders understand the trading terms and conditions binding the demo accounts they are trading as the success or failure of their demo-trading expenditure would be measured by same. Here are a few of the conditions to look out for:
- Stipulated profit target
- Maximum daily drawdown
- Maximum overall drawdown
- Number of trading positions you can hold
- Holding trades overnight
- Weekend trading
- Minimum number of days required
- Maximum number of days required
Prop Firm Evaluation Challenge Phases
Primarily, evaluation challenges come in two levels or phases (1 & 2) depending on the preferred term adopted by a prop firm.
EVALUATION CHALLENGE PHASE 1
Usually in Level/Phase 1, a trader is placed on certain trading conditions which must be upheld within the stipulated period. The main intention of this phase is to introduce traders to the market as well as test their profitable trading skill which is a vital asset to securing a live account.
Since profit-making is the main intention here, a trader is expected to meet a profit target that surpasses the given drawdown limits.
For instance, a trader may be asked to meet up with a 10% profit target while avoiding a maximum drawdown of 10% in 30 trading days. This is actually the case with many prop firms, for example, FTMO.
EVALUATION CHALLENGE PHASE 2
Usually, in Level/Phase 2, the trading conditions in phase 1 are retained except for a few changes. These changes in most cases involve a lessening of the expected profit target and either a retaining of the drawdown limits or an increment in some cases.
For instance, a trader may be required to meet up with just a 4% profit target while avoiding a maximum drawdown of 10% over a period of 60 days just as the case is with True Forex Funds (TFF)
The second level or phase is instituted on a number of reasons. One of them is to ensure that traders didn’t get through stage 1 by sheer luck but by intentional diligence. This is why the number of days in this stage is twice that of stage 1.
Another intention for this stage is to test a trader’s risk management which is another vital skill needed to be a successful trader.
The Advantages of Prop Firm Evaluation Challenge
The Evaluation challenge has one major advantage that traders who opt for No Evaluation Prop Firms miss out on, and that is a piece of firsthand trading knowledge and experience.
The demo account provided in the evaluation challenge allows traders to have a firsthand experience of the market. In using this demo account, traders learn on the job and from their personal mistakes. Through their trial and error, they learn what works and what doesn’t.
The experiences garnered are priceless and become skill sets that are forever valuable intellectual property that will prove critical and crucial to traders in making subsequent wise and independent trading decisions.
No matter how studious a trader is, these are things they can’t learn from books. Even the ones learned while taking trading courses can’t be compared to these firsthand experiences. Writers of trading books and coaches of trading courses were able to do so because they had learned firsthand from their trading experiences, so why not go for it too?
The Disadvantages of Prop Firm Evaluation Challenge
There are three major cases that are leveled against the evaluation challenge:
1. The long wait of non-profitable trading:
This is especially due to the fact that both stages of the evaluation usually require up to 90 days. The actual essence of trading is making profit, so why the quarter of a year wait? “A hope constantly delayed makes the heart sick,” isn’t that true?
Well, some prop firms are finding solution to this with their “no-minimum trading days” policy which means a trader can get funded in 14 days or even less if they meet up with the challenge targets. An example of a prop firm operating this policy is FTUK, one of the best prop firms in the UK. You can click the link below to view their profile and how to get funded:
In addition, some prop firms have found subtle solutions to the profit-less demo account trading season by allowing traders make a small amount of profit. Prop firms like MFF offer traders a 2% profit percent when they pass phase 1 and 4% after passing stage 2. You can check out their profile below:
MFF: One of the best in the business
2. A prop firm dark-art:
This is more like an accusation that cannot be waived. A careful skeptical observation has shown that prop firms use these painstakingly long days as a witty tool to get traders discouraged, drop off and lose interest along the way, thereby forfeiting their non-refundable subscription fee.
Or what objective reason can we make for the stage 2 which apart from changed numbers isn’t different from what traders do in stage 1?
Or if a trader’s risk management skill is so important, why not extend stage 1 to 40 days and do a split of both evaluation stage intentions in 20 days apiece?
3. No success guaranteed:
In the long run, even after having to wait for a quarter of a year, traders can still fail to pass the evaluation challenge. At that, they wouldn’t only have lost their money, but also wasted time, energy, resources and hope.
Where then does this leave the ucey-juicy promises of prop firms as having the goal to improve the financial living of both active and intended traders?
Right in the mud! That’s where.
To read further accusations leveled against Evaluation Challenge, clink the link below
READ: Cases Against Evaluation Challenge
However, regardless of all these cases and accusations, prop firms both old and new have not scrapped it from their policies. Even instant funding prop firms like MFF, Citi Traders, 5ers, FTUK only offer Instant Funding as a means of attraction and to complement their Evaluation Challenge packages.
Another thing worthy of note is the fact that most of those instant funding prop firms offer smaller account sizes on their instant funding programs while the larger accounts are restricted to the evaluation challenge. This is because they cannot trust traders with huge funds unless they have proven their track-records first through evaluation challenge.
Instant Funding can then be likened to a quick-fix meant to suit traders with little patience or in some cases traders with vast experience looking to switch firms. However, if you aim to trade larger account sizes, the painful wait of the evaluation is worth it.
Since Evaluation Challenge is this important, it is hence no wonder why it has remained a mainstay. It simply can’t be entirely discarded by any new revolution. As a matter of fact, the prop firms that offer instant funding options are so small in number. You can check them out by clicking the list below:
READ: No Evaluation Prop Firms
Prop Firms That Offer Evaluation Challenge
The list of prop firms that offer the Evaluation Challenge is almost inexhaustible. ten of them are highlighted below in no particular order. You can click on each to view a detailed examination of their profile, trading terms and conditions, faqs and lots more: