Why Do Prop Firms Have Time Limits?

  • August 19, 2023
Time Limits On Prop Firm Trading Challenges

Online prop firms typically use a challenge-based model to evaluate the profitability of traders, before awarding them a funded trading account. Not all, but the majority of prop firm challenges will have a set time duration, meaning traders need to achieve a profit target within the fixed time duration, or they’ll fail the challenge.

Some prop firm challenges have time limits, specifically to cause a higher percentage of traders to fail the challenge, resulting in a higher profit margin for the business. These prop firms are unethical and make money from traders failing challenges.

In this article, we will look at exactly why prop firms have time limits, what this means for traders and how to avoid getting stung working with these firms! So, let’s get into it…

Time Limits On Prop Firm Trading Challenges

If you’re familiar with demo-only prop firms, you’ll have noticed that the most popular firms have a ‘time duration’ listed on all challenges. They typically last about 20–30 days. The 30-day durations often include weekends, meaning you would have around 20 trading days to complete the profit targets listed. If you fail to reach the profit targets within the allotted time frames, you will have your accounts forfeited. And you will fail the challenge. This means you’ll need to purchase a new challenge and try again if you’re still set on becoming a funded trader.

Now, it’s worth mentioning that real money prop firms like Lux Trading Firm don’t have any time duration on trading challenges.

Typically speaking, it’s only prop firms that are paid on traders failing that like to impose trading time durations on challenges.  

Why Do Prop Firms Place Time Limits On Challenges?

 Unethical prop firms place time limits on trading challenges in order to increase the number of traders that fail. Any career trader will tell you that it’s impossible to guarantee a great month in the markets, or a great quarter. Expecting a trader to turn a profit in just 20 days is unrealistic and incentivizes traders to use high risk. The prop firms know that this time pressure, plus the incentive to abandon risk management, is enough to push traders over the edge and cause them to fail, more times than not.

Prop firms, that operate in this way, are “funding” traders on demo accounts. Therefore, when a trader gets a funded account, they will be costing the prop firm money. However, when traders fail to get funded, their challenge fee is profit for the business!  

These firms are unethical, in our eyes, and deliberately don’t align themselves with their traders.

However, prop firms like Lux Trading Firm offer real capital to traders, meaning they only make money when traders get funded and earn profits! The revenue for these prop firms is generated through profit splits with profitable traders. Therefore, you’ll find this second type of prop firm does not often set time limits for traders, as they know this will just cause more traders to fail, instead of rewarding profitable traders.

 Why Are Time Limits On Trading Challenges Dangerous For Traders?

Time limits are a very dangerous tool for traders. Whether self-imposed or imposed by a prop firm, having a time limit will regularly lead to many mistakes and subpar trading. The market cannot be timed, and you have no control over the market. There are trending markets, ranging markets and everything in between. If a trader’s strategy works in trending markets only, if the market does not trend for 2 weeks, how is the trader expected to make profits within that 2-week period? They can’t, unless they force trades outside their trading plan!

Time Limits Cause Traders To:

  1. Breach Their Trading Strategies
    The increased pressure of the time burden often causes traders to take subpar trades and trades they would usually avoid, if they had no time pressures. This, ultimately, causes bad trading performance, regardless of their trading plan.
  2. Hold Trades Further Into Drawdown
    Time limits can cause traders to abandon good risk management and hold trades further into drawdown than they should, out of fear. The traders are typically aware of the fact that this may be the only trade they can take during their remaining trading challenge time window. Because of this, hey’ll put risk management to the side and hope for the best – resulting in losses.
  3. Use Increased Risk
    The time pressure will also cause traders to use an increased level of risk in trades. This increased level of risk will ultimately lead to larger losses, larger draw downs and more emotions being seen from the trader. Have a read of our new article discussing the amount of risk you should use during prop firm challenges.
  4. Ultimately, Lose
    All of these factors ultimately lead to more traders losing prop firm challenges and failing to get funded. This is unfortunate to see as a percentage of these traders would actually be profitable on their own capital but fail under the strict time pressures of some of these online prop firms.

Are There Prop Firms With No Time Limits?

Luckily, there are prop firms that do not have a time limit on challenges, thus allowing traders to actually be successful.

At Lux Trading Firm, we do not have any time durations on any of our funded accounts. This, along with education, a risk management desk and great trading conditions, are some of the factors that lead to our Elite Traders having some of the best funding rates in the industry!

Of course, we are biased, but we would strongly recommend for traders to work with a prop firm that is incentivized to see the traders succeed, rather than fail. This way, you can rest assured that the firm is doing everything they can to make your trading rules and trading conditions as favorable as they possibly can!

 In Conclusion – Why Do Online Prop Firms Place Time Limits On Challenges?

In summary, online prop firms place time limits on challenge accounts to limit the number of traders that pass these challenges and get funded. It’s typically ‘demo’ prop firms that adopt this practice, as it’s not in their best interest to allow traders to pass.  

Whereas real money prop firms like Lux Trading Firm only get paid from traders taking profits out of the markets, so are incentivized to make the challenges possible for traders!

Are you looking to get funded? Work with Lux Trading Firm today.