The data is out there: most traders fail prop firm challenges. But they fail because of very common mistakes that could have been avoided.
In this article, we’ll cover the most common mistakes prop firm traders make and how to avoid them on your road to becoming a funded trader.
1. Trading Without a Plan
One of the fastest ways to fail at prop firms is to jump in without a clear, structured trading plan.
Prop firm challenges are hard enough to pass with their specific rules and strict risk management. Buying evaluation accounts without having any idea how, what, and when to trade is a recipe for disaster.
Spend some time educating yourself and demo trading before considering spending any money on prop firm challenges. Some essentials to focus on before buying a challenge are:
- Finding a good mentor and paying for education
- Backtesting a trading approach that suits your needs and personality
- Understanding the fundamentals of trading, how it works, and how to leverage trading prop firms
2. Not Understanding Prop Firm Challenge Rules
Every prop firm has different evaluation rules and requirements, and trading a prop firm account before fully understanding them is one of the most common mistakes.
Many traders jump into trading their newly-purchased challenge account, only to realize too late that they’ve violated some kind of rule they brushed off and didn’t read about.
You should understand all of the following things before even placing your first trade in your prop firm account:
Maximum and Daily Drawdown
Some firms base these on balance, others on equity, and some have a trailing drawdown. Understanding these two rules is crucial to your success as a prop firm trader.
News Trading Restrictions
Certain prop firms prohibit opening or closing trades around high-impact news, usually in a 10-minute window. Ignoring this could result in having your profits from the news trade deducted, or at worst, a breach of your prop firm account.
Consistency Rules
There are prop firms that require profits to be spread out over multiple days or forbid “one big trade” wins.
This is known as a consistency rule, and requires traders to be consistent with their trading approach and risk management across all of their trades.
In most cases, ignoring this rule will result in having to place more trades to even out the “big trade” wins, but some prop firms might deny a payout or even breach your account for it.
Risk and Stop Loss Rules
There are traders who aim to pass a challenge based on luck. They risk the whole account in one or two trades and try to get to the funded stage as fast as possible.
Because of this, a lot of prop firms have implemented risk per trade rules, where traders are not allowed to risk more than a certain percentage of their account. This is usually up to 1%, which is reasonable, given a profit target of 8%.
Some prop firms will apply this risk per trade rule only in their funded phases, but some have already implemented it in the evaluation phases as well.
Some traders don’t put a Stop Loss order as well. This is an attempt to ensure that big market swings won’t stop them out of their over-risked position, and they can still pass in 1-2 trades.
To tackle this, certain prop firms have a mandatory Stop Loss rule. Every trader who puts on a trade without a Stop Loss will automatically breach their account.
3. Poor Risk Management
The key to profitability has never been the trading plan. It’s the risk management that separates profitable and unprofitable traders.
Most traders underestimate how strict prop firm risk management rules are compared to trading a personal account. Or they are just completely clueless about risk management in general.
A $100,000 prop firm account with a 10% Maximum Drawdown effectively gives you $10,000 of capital to risk. Risking 2% per trade ($2,000) means just five losing trades could blow your prop firm evaluation.
Some mandatory risk management rules for prop firms are:
- Risking 0.25%–1% per trade to ensure you’re well within the Max. and Daily Drawdowns of your account
- Always using a Stop Loss to avoid breaching any rules or blowing up the account in one trade
- Tracking your P&L across open trades to prevent exceeding the Daily Drawdown rule
4. Gambling with Prop Firm Accounts
Prop firm challenges are relatively cheap compared to having to raise the same amount of six-figure capital to trade with. Because of this, some traders adopt a gambling mindset. They try to gamble their way through an evaluation, risking huge positions in the hope of passing quickly.
The same approach is applied to the funded account, in hopes of getting a home-run payout, buying more challenges, and repeating the process.
This behavior usually looks like:
- Risking your entire account or an unreasonable percentage of it in one trade
- Not placing a Stop Loss to avoid getting stopped out, in the hopes of the trade reversing in your favor
- Trading all directions without a clear bias or plan
- Following signals from other traders
- Continuously buying and blowing multiple prop firm evaluations
While you might get lucky once or twice, gambling is not a sustainable path to passing challenges or getting payouts from a funded account. And it’s definitely not considered trading, either.
Prop firms are working hard on implementing more rules to prevent this type of approach to prop trading.
5. Choosing a Prop Firm Based on Prices
The first thing most traders do when it comes to choosing a prop firm is look at the prices of their challenges.
While important, costs shouldn’t be the main reason you go with Prop Firm X over Prop Firm Y.
Generally, prop firms running the most lucrative prices and promotions don’t think long-term and don’t aim at growing the company for the benefit of traders and the prop firm industry.
Unfortunately, there have been and are a lot of prop firms here for a “cash grab”. The process is usually as follows:
- Offer super cheap prices and constant 90% off promotions
- Slip and create artificial spread for traders, so they have a hard time passing the evaluation
- Delay and deny traders’ payouts for no reason
- Close down or just rug pull without paying traders out, and leave with all the money from challenges
This sounds unrealistic, but it’s a recurring practice in the industry, with bad actors regularly showing up and then quickly disappearing.
The cheapest prop firms will have these things in common:
- Hidden rules: Undisclosed risk management “rules”, which traders end up unknowingly breaching.
- Poor execution: Unreliable trading platforms, wide spreads, or artificial slippage.
- Delayed and denied payouts: Financially unstable prop firms without a vision for their business will deny or delay payouts for as long as possible, until they can just leave with the accumulated funds
- No long-term vision, cheap prices and discounts: Constant promotions and cheap prices to incentivize the recurring purchase of multiple challenges, so they can keep growing the bank, without improving anything within the company.
Evaluate a prop firm by its reputation, transparency, execution quality, payout history, and public reviews instead of looking for the lowest price.
It’s better to spend a little more on a challenge with a legitimate prop firm than waste money on firms that never really intend to pay you out, essentially wasting your time.
Conclusion
If you avoid these common mistakes and approach prop firm trading properly, you’ll give yourself the best possible chance not only to pass an evaluation, but to stay funded and get consistent payouts.
While costs are not the most important factor when it comes to buying prop firm evaluations, we’ve done our best to provide traders with the best possible discounts in the industry.
FAQs
- Why do most traders fail prop firm challenges?
Most traders fail because of poor risk management, not understanding the prop firm’s rules, or trading without a clear plan.
- How much should I risk in a prop firm account?
A safe range is 0.25%–1% per trade, depending on the prop firm’s drawdown limits and risk management rules. Risking more than this can quickly breach the Daily or Maximum Drawdown rule.
- Are cheap prop firm evaluations worth it?
Not always. Many firms offering very low prices or constant promotions have hidden rules, poor trade execution, or a history of delaying/denying payouts. It’s usually better to pay extra for a challenge with a trusted firm.
- What’s the biggest mistake prop firm traders make?
The biggest mistake is treating prop firm trading like gambling. Risking too much and chasing payouts without a trading plan is a vicious cycle.