How To Pass A Prop Firm Trading Challenge

  • November 11, 2023

Prop firms have become more popular than ever before, with most forex retail traders either being familiar with prop firms, or having a go at getting funded themselves!

Typically, prop firms all have challenges where traders must showcase their skills in order to get funded. However, these are not always as easy to pass as they sound!

In this article we’ll be looking at prop firm challenges, how to pass them and everything you need to know! Let’s get into it…


How To Pass A Prop Firm Challenge

These days, you aren’t likely to find a prop firm that is willing to fund traders without the use of a challenge.

Challenges are very simple in nature, however, they aren’t very easy to pass for most traders that are lacking some incredibly important skills.

Prop firm challenges are primarily passed through great risk management, not making profits or taking large winners.

Passing prop firm challenges is incredibly important if you’re looking to scale your trading capital and obtain larger profits from the markets.

Lux Trading Firm’s Elite Traders Club has the highest prop firm pass rate in the industry, for a number of reasons. However, typically, it’s said the industry standard for traders passing their challenges is around 10-20% pass rate.


What Is A Prop Firm Challenge?

Prop firm challenges are exactly what they sound like! Prop firms typically ask traders to complete a challenge on a demo account, prior to receiving any level of funding or receiving any profits.

These challenges are usually either one or two phases.

In the first phase, the trader typically must reach a profit target on a demo account (the industry average is 10%). This must be achieved without violating a maximum loss figure or a maximum daily drawdown figure, in most cases.

Traders usually have an unlimited time period to achieve the profit target.

These challenges are designed to weed the unprofitable traders out from the profitable traders. For profitable traders that have a really good grasp of risk management, the challenges are very possible to pass.

For traders with no profitability or grasp of risk management, it can be incredibly hard to obtain a funded account and more importantly – to keep one!


Why Do Prop Firms Have Challenges?

Prop firms typically have challenges unless they are an instant funding prop firm, which we are seeing less of now in the industry due to their aggressive business model and risks.

Prop firms all have challenges due to needing to validate the competencies and abilities of forex traders before committing to funding.

A firm will not feel confident providing real trading capital to a trader without understanding their ability – which makes complete sense.

Some prop firms, primarily demo prop firms (simulated funding accounts) put fairly hard trading challenges in front of their traders purely with the intention of making money from the traders’ failing challenges.

However, real money prop firms like Lux Trading Firm offer a challenge to traders to gauge the extent of their ability before losing money providing funding to said trader!


Passing A Prop Firm Challenge – Top Tips

So, now we have discussed what a prop firm challenge is and why challenges are in place, let’s take a look at how to actually pass a challenge…


1. Have A Trading Plan

There is very little point in trying to become a funded trader if you don’t have a trading plan in place. You should be crafting your trading plan around your existing strategies, to fit the prop firm environment.

Trading plans should tell you exactly when you’re trading and what you’re trading. From analysis criteria to fundamental analysis checklists – you should be able to blindly follow your trading plan without feeling the need to stray.


2. Have A Risk Management Strategy

A trading plan isn’t enough if you want to become a funded trader. It’s also crucial to have a risk management strategy in place.

This strategy should tell you exactly how much you’re risking per trade, where your stop losses should be placed, how you’ll manage risk during trades, how you’ll manage larger periods of drawdown and much more.

Ultimately, risk management is more important than any trading strategy you could create. We’ve seen Elite Traders doing incredibly well with some very basic strategies and great risk management practices.

This is what sets profitable traders apart from unprofitable traders – the ability to manage risk like a professional.


3. Understand The Rules

Before even embarking on your funded trading account journey, you should be completely understanding the rules of the prop firm. This includes the strategy rules, drawdown, loss, profits, overnight and weekend holding etc, scaling rules, multiple positions, hedging etc.

There are a lot of rules to be understood so take your time in reading them, understanding them and ensuring that your strategy will fit within these rules.


4. Take Your Time

Prop firm challenges are not there to be passed overnight. You should not be rushing your challenge or looking to pass within a matter of days… It’s unrealistic and you’ll most likely lose your account in the process.

Prop firm challenges should take you a number of months to pass, if you’re exercising risk management.

In fact, risk management should be your only focus rather than focusing on the profits you could be making. Your whole goal should be focusing on keeping your prop firm account and not violating any of the rules set out.


In Summary – How Do You Pass A Prop Firm Challenge

In conclusion, prop firm challenges can be passed by having a good trading plan in place, a risk management strategy, a deep understanding of the rules and by being patient.

However, traders often get emotional and want to speed up their success, thus abandoning risk management and blowing their trading account challenges!


Are you looking to become a funded trader? Work with Lux Trading Firm today!