Prop firm evaluations explained: targets, drawdowns and the fine print
Pay a fee, pass a trading test, trade the firm's money. The rules decide whether that is a fair shot, so here is how they work.
Kivorent News desk, , 2 min read
What to know
- An evaluation is a paid test on a simulated account: reach a profit target without breaking the loss rules.
- The loss limits, not the profit target, are what end most attempts.
- Rules differ between firms in ways that change the difficulty a great deal. Read them before you pay.
Retail proprietary trading firms, usually called prop firms, offer a deal that sounds simple. You pay a fee to take a trading test. If you pass, you trade an account the firm funds and keep most of the profit. The details are in the rules.
How the evaluation works
You get a simulated account of a stated size, for example $50,000. To pass, you have to reach a profit target while staying inside the firm's risk limits. Some firms use one stage and others use two, with a smaller target in the second.
The fee depends on the account size. Depending on the firm, it is charged once or monthly until you pass or quit.
The rules that matter
Profit target. The gain you need, often expressed as a percentage of the account. On a $50,000 account, a 6% target is $3,000.
Maximum drawdown. The most the account can lose before it is closed. This rule ends the most attempts, and it comes in two forms that behave very differently. We cover them in trailing versus static drawdown.
Daily loss limit. A cap on how much you can lose in one day. Check whether it is counted from the day's starting balance or from the day's high point, and whether open positions count.
Consistency rule. Some firms cap how much of your total profit can come from a single day. One huge day can then fail to count as a pass.
Time rules. Minimum trading days, deadlines, and whether you can hold positions overnight, over the weekend or through news releases.
After you pass
A funded account usually comes with the same loss limits, and breaking one closes it. Profits are split, with the trader keeping the larger share. Before you count on a payout, check:
- The minimum profit and number of days before you can request one.
- Whether a buffer has to stay in the account.
- How often payouts are allowed and how they are sent.
- Whether the funded account trades real money or stays simulated, with the firm paying you from its own funds. Both models exist.
The economics
Most people who buy an evaluation do not pass it, and many who pass lose the funded account before taking a payout. Evaluation fees are a large part of how these firms earn money. That does not make the model a scam. It does mean the fee should be treated as the price of an attempt, and you should expect to need more than one.
Questions to answer before paying
- Is the drawdown trailing or static, and does it count open profits?
- Does the daily limit include unrealized losses?
- Is there a consistency rule?
- What does a reset cost?
- What are the exact payout conditions?
- What happens to your account if the firm changes its rules or shuts down?
A practical test
Trade the rules before you pay for them. Run your strategy on a demo account for a month with the firm's limits written down next to you. If you would have broken a rule, you have learned that for free.
The tool that keeps traders inside these limits is position sizing. See the math of risking 1%.
This article is general information. It is not investment advice, and trading involves the risk of losing money.
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