Every prop firm has its own specific structure for evaluations — but the fundamental framework is consistent across the industry. A two-phase model is most common: Phase 1 (the challenge) requires achieving a higher profit target to demonstrate trading ability, Phase 2 (the verification) requires a lower profit target to demonstrate consistency, and the funded account follows for successful candidates. Understanding exactly how each phase works — the targets, the limits, the timing, and the rules that apply — allows you to plan your approach before you pay the evaluation fee and before you place your first trade.
The Two-Phase Structure
The two-phase evaluation structure is designed to filter out both lucky traders (who might pass a single phase through short-term fortune) and inconsistent traders (who perform well in one phase but cannot repeat it). Phase 1 sets a higher bar to demonstrate competence. Phase 2 sets a lower bar to demonstrate that Phase 1 performance was not a fluke. Together, they require a trader to produce profitable results twice under the same constraints — significantly reducing the probability of passing through luck alone.
Phase 1 — The Challenge
Phase 1 is the primary evaluation — the most challenging phase. Typical parameters include a profit target of 8% of the account balance, a maximum daily loss limit (typically 4-5% of the initial account balance), a maximum total drawdown limit (typically 8-10% of the initial account balance), and a minimum trading day requirement (typically 10 trading days minimum active trading).
Profit target: 8% = $8,000. Maximum daily loss: 5% = $5,000. (If your account loses $5,000 in any single calendar day, the challenge fails.) Maximum total drawdown: 10% = $10,000. (If your account ever drops $10,000 below the starting balance, the challenge fails.) Minimum trading days: 10. Time limit: 30 calendar days. To pass Phase 1, you must: 1. Make at least $8,000 profit. 2. Never lose more than $5,000 in a day. 3. Never be more than $10,000 below start. 4. Trade on at least 10 different days. 5. Do all of the above within 30 days.
Phase 2 — The Verification
Phase 2 is typically more lenient on the profit target but maintains the same risk rules as Phase 1. A typical Phase 2 requires a 5% profit target (lower than Phase 1's 8%) with the same daily loss and maximum drawdown limits. The time limit is often extended — 60 days rather than 30.
The logic of the lower profit target in Phase 2 is deliberate: the firm is not looking for another performance spike — it is looking for evidence that you can generate steady, consistent returns within the risk rules rather than taking aggressive risks to hit a high target quickly.
Profit target: 5% = $5,000. Maximum daily loss: 5% = $5,000. (Same as Phase 1.) Maximum total drawdown: 10% = $10,000. (Same as Phase 1.) Minimum trading days: 10. Time limit: 60 calendar days.
The Funded Account
After successfully completing both evaluation phases, the trader receives a funded account — access to the firm's capital for live trading. The funded account typically maintains the same risk rules as the evaluation (same daily loss and maximum drawdown limits) but removes the profit target requirement and time limit. The trader trades indefinitely within the risk rules, receives a percentage of profits generated (typically 70-90%), and the relationship continues as long as the rules are maintained.
Some firms have scaling plans — if the trader demonstrates consistent profitability over multiple months, the funded account size is increased. A trader who starts with a $100,000 funded account and performs consistently for three to six months may be scaled to $200,000 or more.
What Happens After Funding
The funded account phase is where the real long-term relationship with the prop firm begins. Several ongoing requirements typically apply.
Consistent trading activity: Most firms require a minimum number of trading days per month to maintain the account. Going months without trading can result in account termination. Risk rule compliance: The daily loss and maximum drawdown limits apply permanently — not just during evaluation. A single day of exceeding the daily loss limit on a funded account terminates the account immediately. Payout process: Profits are typically paid on request after a minimum holding period — usually 14-30 days. Some firms pay weekly, some monthly. Understand the payout process before funding. Scaling requirements: Firms that offer scaling plans typically require a minimum number of months of profitable trading and a minimum profit achieved before scaling is eligible.
The funded account phase is where most traders discover that the discipline required to pass the evaluation must be maintained permanently — not just during the test. Many traders pass both phases and then breach the daily loss limit on the funded account within the first week — because the pressure of trading real institutional capital, and the temptation to "make up" for a bad start, produces the same impulse control failures that the evaluation process was designed to catch.