Prop Firms: What Are They?
Imagine that even though you are a skilled trader, you have little money to work with. Prop Firms like FTMO, Apex Funding Trader, and others are useful in this situation. Prop firms only ask you to complete and pass a prop trading assessment that demonstrates your ability to trade sensibly and profitably, rather than demanding that traders deposit a sizable sum into their trading accounts. If you successfully complete the challenge, you will be able to trade virtual money and make withdrawals. These companies function more like training camps than traditional proprietary trading firms, which employ you as an employee. They give you the opportunity to trade professionally without most of the obstacles that typically prevent people from doing so.
Challenge Types: One-Step, Two-Step, Three-Step, and Instant Funding
Most prop firms will put you through a series of challenges that will test your skills and risk management abilities.
Here’s a brief overview of each:
For traders who want to get funded as quickly as possible, the 1-Step Challenge is a simplified process. The only thing you need to do is reach a predefined profit target, usually 8–10%, without exceeding the limits, usually 6%. It’s great if you have a plan and are looking for a quick and simple way to get funding. The 1-Step Challenge typically has lower drawdown limits than the 2-Stage Challenges, which we will discuss next.
The two-step challenge, which requires winning a first phase with a target profit and a second verification phase with a target profit that is often much lower, is the most popular challenge. This helps firms assess the trader’s profitability and consistency.. Usually, a profit target of 8% is set for the first phase and 5% for the second.
The 3-Step Challenge, which adds a step to the trading evaluation process to confirm skill and consistency, is less commonly used. This is also a good option for traders who prefer to take their time or who are new to trading and want to build confidence in their trading system, even though it will take more time. Usually, the objective for each step in this challenge is 6%.
Instant Funding (No Challenge): A higher fee is paid in lieu of evaluation when certain prop firms offer instant funding. For experienced traders who don’t want to wait to enter the market, this is perfect because it provides direct access to the funded stage. In general, this kind of account has more stringent rules and smaller profit splits.
The Way It Works After Funding
You trade virtual capital that the company has provided in a funded account after passing the test. Profits are usually shared, though the share rate varies based on the type of challenge and company policy. The profit split for 1-step, 2-step, and 3-step challenges is generally better than that of instant funding accounts. To make sure you stay within the daily and maximum drawdown risk limits, prop firms continuously monitor your account. Most prop firms make payments every week, every month, or every two weeks.
Fees and Charges
Most of the time, you have to pay a one-time fee to get a prop account, which is usually reimbursed when you get to the funded stage and request your first withdrawal. Instant funding is more costly because you bypass the Challenge phase, but it’s a faster way to collect money if you are confident in your skills.
Many people can trade at high stakes without having to make large upfront investments thanks to prop firms. If you’re willing to prove yourself, these firms can offer a direct path to trading with more money.
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