How to Evaluate a Prop Firm Before You Pay For a Challenge

Editorial note: This article was written by Sachin Kotecha and edited for publication by the International Trading Institute.

The prop firm numbers that matter more than account size

A $100,000 prop-firm account is not really a $100,000 risk budget. If the maximum loss is $5,000, that $5,000 is the amount your strategy actually has to survive.

That distinction matters. A prop firm can look attractive on headline account size, profit targets and payout splits, yet still be a poor fit for the way you trade.

Before paying for a challenge, you need to answer a more useful set of questions:

1. Who are you actually contracting with?
2. Would your normal strategy survive the firm’s drawdown rules?
3. What could prevent a payout?
4. How much could the entire attempt really cost if you have to try again?

The answers are often more important than the size of the account being advertised.

Start with the company taking payment

Find the legal company named in the Terms and Conditions. Write down its registration number, jurisdiction, registered address, governing law and complaints process. Check the name on the payment page or receipt as well.

Confirm that the same legal name appears on the website, in the contract and on the payment page. If the names differ, ask the firm to explain why in writing before you pay.

A company registration shows what was filed. Companies House explains that it checks filings but does not verify the accuracy of every detail submitted to the UK register. Read the firm’s contract and trading rules separately.

If the website says the firm is regulated, search the regulator’s own database. Check the exact company name, website, contact details and permissions. The FCA explains that an authorised company may also sell products or services outside the FCA’s remit. In the United States, the CFTC directs traders to NFA BASIC for registration, disciplinary and financial records, while noting that some firms and activities fall outside its registration requirements.

Do not assume that the absence of a firm or service from the FCA Register automatically determines its legal or regulatory status. Whether FCA authorisation is required depends on the activities and services actually being carried on. Equally, the fact that a company is FCA-authorised for one activity does not mean every product or service it offers is FCA-regulated.

A licence number copied onto a website is easy to display. Confirm it at the source.

Next, write down what you receive during the challenge and what changes after you pass:

• Are the trades simulated or live?
• Does the later account use company capital or fictitious funds?
• How is the trader paid?
• Can the firm copy or use the trader’s trades?

Treat “funded” as marketing shorthand until you have read the contract. FTMO, for example, says in its general disclosure that its accounts use fictitious funds in a simulated environment and that it provides simulated-trading services rather than brokerage accounts. Belgium’s FSMA issued a warning in March 2024 about paid challenges, demo-account trading and unclear commission conditions.

Read the current contract for the firm you are considering.

Do not pay while you are still unsure which company you are contracting with, whether the account is simulated, or which document governs payouts and account closures.

Work out how much risk the account allows

Ignore the account size for a moment. Start with the maximum amount the rules allow you to lose.

Effective loss allowance = maximum permitted loss ÷ advertised account size × 100

For a $100,000 account with a $5,000 maximum loss:

$5,000 ÷ $100,000 × 100 = 5%

Now compare the profit target with that loss allowance:

Profit-target-to-loss ratio = profit target ÷ maximum permitted loss

A $10,000 target divided by a $5,000 loss allowance gives a ratio of 2.0. You are being asked to make twice as much as the account permits you to lose.

A high ratio can push you towards more risk or more trades than usual. Compare it with the pace of your own strategy before paying.

Hypothetical $100,000 challenge showing a $5,000 maximum loss and a $10,000 profit target.

Replay your strategy using the firm’s rules

Do not compare the firm’s 5% limit with a drawdown percentage copied straight from your journal. Your journal and the firm may calculate loss differently.

Take a representative sample of your trades and recalculate it. Use your normal position size and the same starting capital as the challenge. Follow the firm’s treatment of balance, equity, open profit and loss, commissions and swaps. Check the account at the same frequency as the firm: an intraday breach can disappear from an end-of-day journal.

Use the rules for the account stage you expect to trade. Holding restrictions, news rules and drawdown calculations may change after the evaluation.

If your records do not contain enough intraday equity or cost data to do this, you do not yet know whether the strategy fits.

Comparison of end-of-day journal drawdown with an intraday firm-rule replay that breaches the loss limit.

Check these parts of the replay:

Consider a trader who risks 0.75% per position and has previously taken seven losses in a row. Before compounding, that run cost about 5.25%:

0.75% × 7 = 5.25%

On a programme with a 5% maximum loss, that known losing run is enough to close the account. The trader did nothing unusual. The rules simply leave too little room for the strategy.

If the full replay shows a 3% maximum drawdown against a 5% limit, there is 2% of room left:

Spare room = programme maximum loss − recalculated strategy drawdown

Now compare that 2% with the losing runs in your own records. If a normal run has cost 2.5%, the account is still too tight.

Read the exact drawdown and trading rules

Two accounts advertised by the same firm can behave differently. FTMO’s current Trading Objectives, for example, describe an end-of-day trailing equity limit for its 1-Step Maximum Loss and a static limit for its 2-Step product. Its daily-loss calculation includes open profit and loss, swaps and commissions.

FTMO also allows overnight and weekend holding during evaluation but restricts it on funded-stage Standard accounts. Swing accounts have different conditions. Its strategy rules cover EAs, repeated strategies and server activity, and its symbol pages list commissions, leverage and trading hours.

Check the same details for the programme you are considering. A swing trader needs to know whether positions can remain open over the weekend. A scalper needs the actual spread, commission and execution restrictions. An automated trader needs the EA, VPS and copy-trading rules.

If the programme works only after you increase your normal risk, it does not fit your current strategy. Moving from 0.5% to 2% risk per trade changes the method being tested.

Read the payout terms before the challenge fee

An advertised 80% profit split tells you very little if you do not know when a payout can be requested or why it can be refused.

Try to finish this sentence using the contract:

A payout could be refused if I…

Then do the same for account closure:

The firm could close the account if I…

Find the first payout date, request frequency, consistency rules, caps, required profit buffer, identity checks, prohibited trading and any clause that gives the firm discretion to refuse payment. Check what a withdrawal does to the remaining drawdown allowance.

FTMO’s current Trading Objectives include a Best Day rule for some accounts. Its reward FAQ gives request dates, open-position requirements, reward ratios and rollover choices. Other firms set different terms.

Save the version of the contract you reviewed. If an important clause is unclear, ask for an explanation in writing.

Count the cost of more than one attempt

Write down every charge: the challenge, another attempt, resets, subscriptions, activation, platform or market-data fees, and withdrawal or currency-conversion costs.

FTMO describes its challenge fee as a one-time charge with no recurring product fee. Do not assume another firm charges the same way.

Suppose a trader pays £300 for a challenge, £300 for a second attempt, £100 for a reset and £150 for activation. The total spend is £850. If the trader later receives £1,000, the result before personal tax and other costs is £150:

£1,000 − £850 = £150

Hypothetical prop-firm costs totalling £850, leaving £150 from a £1,000 payment before tax and other costs.

Keep a running total:

Net result = all payments received − every programme cost

Decide how much you are willing to spend before the first payment. Challenge fees can be lost in full, so keep essential money out of that budget. A discount changes the price, not the questions you need answered.

Read reviews after the contract

Use reviews to find recurring problems worth investigating. Do not use them as a substitute for the rules.

Look for complaints that name the programme and rule, give a date, explain what happened and include the firm’s response where available. Pay attention to repeated reports about refused payouts, account closures, rule changes or platform failures. Treat a lone unexplained review as a lead. If several traders describe the same problem with dates or documents, investigate it before paying.

Check how the reviewer is paid. FTMO’s affiliate programme, for example, pays commission on referred first purchases and offers higher tiers. Look for disclosure of that commission, then check the review’s claims against the contract.

Start with the contract, company register and regulator. Then read the firm’s payout and fee pages. Use reviews to check how those written terms have worked in practice. Treat promotional videos and affiliate pages as places to find claims that still need checking.

Decide before you reach the checkout

Before checkout, write down the answers to five questions:

1. Who is the legal company taking the payment, and what exactly am I buying?
2. Can I reproduce the daily and overall loss calculations?
3. What happened when I replayed my normal strategy under those calculations?
4. What could close the account or prevent a payout?
5. How much am I prepared to spend across every attempt?

If the company or contract is still unclear, stop. If your previous trades would have breached the rules, do not proceed unless you have independently assessed whether the programme is compatible with your strategy, risk limits and circumstances.

If the full cost exceeds the amount you set aside, do not pay.

Before entering your card details, explain the account in your own words without relying on the firm’s marketing language. If you still depend on an affiliate video, a support-chat promise or a drawdown figure you have not recalculated, close the payment page and finish the work first.

Interests and Relationships

At the date of publication, neither the author nor the International Trading Institute received payment, commission, referral fees or other material compensation from any prop firm referenced in this article in connection with its inclusion. Links to third-party websites are provided for source verification and informational purposes only and are not endorsements. Any material commercial relationship relevant to the content will be disclosed where applicable.

The third-party links in this article are not affiliate links.

Sources

• FTMO — General Disclosure
• Financial Services and Markets Authority — The FSMA Warns Consumers Against Shadow Investment Game
• Financial Conduct Authority — How to Check a Firm or Individual Is Authorised
• Commodity Futures Trading Commission — Check Registration and Backgrounds Before You Trade
• Companies House — Service Information and Register Limitations
• FTMO — Trading Objectives
• FTMO — How Do I Withdraw My Reward?
• FTMO — Do We Charge Any Other Fees?
• FTMO — Overnight and Weekend Position Rules
• FTMO — Instruments and Strategy Rules
• FTMO — Affiliate Programme
• International Trading Institute — Why Your Trading Timeframe Does Not Fit Your Strategy
• International Trading Institute — Trading Strategies & Risk Management

Educational material only. This article does not provide investment, financial, legal, regulatory or tax advice and does not recommend or endorse any prop firm, challenge or funded-account programme. Terms, rules, fees and regulatory status can change. Verify current primary documents and obtain independent professional advice where required.