In recent years, prop trading firms have become an increasingly popular avenue for traders to scale their operations without having to risk their own capital. Companies like FTMO, Top One Trader, Relentless, and The 5%ers offer traders a variety of ways to get funded and manage large capital accounts. However, each firm and funding method comes with its own set of pros and cons. In this blog, we’ll explore the different prop trading methods available, focusing on 1-step challenges, 2-step challenges, and instant funding models to help you choose the best path for your trading journey.
1-Step Challenges: Simplicity with Fewer Hurdles
A 1-step challenge is relatively straightforward. Traders are given a single challenge to meet a set of performance criteria, such as achieving a certain percentage of profit within a time limit, while maintaining specific risk parameters like maximum drawdown and loss limits.
Pros:
Quicker Access to Funding:
With only one evaluation phase, traders can potentially get funded much faster compared to 2-step challenges.
Simplicity:
Fewer steps mean fewer rules to adhere to over multiple phases. This reduces the pressure of having to pass two evaluations in a row.
Lower Mental Strain:
The absence of multiple phases means you can focus all your efforts on a single goal, reducing the mental fatigue associated with extended evaluation processes.
Cons:
Higher Upfront Risk:
With a 1-step challenge, the trading firm assumes higher risk, so these models may have stricter risk management rules, potentially limiting the trading style or strategies you can use.
More Difficult Profit Targets:
Since it’s a one-time evaluation, some firms may require higher profit targets, which can be tough to achieve under time pressure.
Example Firms: Top One Trader and Relentless are known to offer 1-step challenge models, providing traders with simpler paths to funding.
2-Step Challenges: More Validation but Higher Security
The 2-step challenge, most notably used by firms like FTMO, requires traders to pass two phases of evaluation before receiving funding. Typically, Phase 1 involves meeting a profit target within a set time limit, followed by a more lenient Phase 2 with lower profit targets but the same risk management rules.
Pros:
More Thorough Validation:
Firms using 2-step models often ensure traders have consistent and sustainable performance over a longer period, which can help you feel more confident in your abilities once funded.
Lower Profit Targets in Phase 2:
After passing Phase 1, Phase 2 generally has a lower profit requirement, making it less stressful once you're halfway through the challenge.
Proven Track Record:
Passing two phases showcases a trader’s resilience and adaptability, which can be beneficial when transitioning to managing larger capital with real funds.
Cons:
Longer Time Commitment:
The evaluation process is longer since traders have to pass two distinct phases. This can be frustrating if you’re eager to begin trading with a funded account.
Pressure to Stay Consistent:
Having to maintain consistency across two phases can be mentally taxing, and any mistakes in Phase 2 might cause you to start over from the beginning.
Delays in Funding:
The extended evaluation means you may have to wait weeks or even months before being able to access real capital, depending on how quickly you meet the criteria.
Example Firms: FTMO and The 5%ers offer 2-step challenges, emphasizing both long-term risk management and performance consistency.
Instant Funding Models: Fast Track to Real Capital
Instant funding models provide traders with immediate access to capital without needing to pass any evaluations or challenges. Traders either pay a higher upfront fee or agree to a more conservative profit split to start trading live capital right away.
Pros:
Immediate Access to Funds:
There’s no waiting around for evaluations. As soon as you sign up and pay the fee, you get access to capital, making it ideal for experienced traders who want to hit the ground running.
No Evaluation Stress:
Without the need to meet specific profit targets or deadlines, you can trade more freely without the added pressure of evaluations.
Faster Path to Earnings:
Since you’re instantly funded, you can start earning profits from day one, provided your trading strategy is sound and consistent.
Cons:
Higher Upfront Costs:
These models typically require a larger initial fee compared to challenge-based models. This can be off-putting for traders who prefer to prove themselves first rather than pay upfront.
Stricter Profit Splits:
Instant funding often comes with a more conservative profit split, meaning you may receive a smaller percentage of your earnings compared to traders who go through evaluation processes.
Less Proving Ground:
Without an evaluation phase, traders may feel untested under pressure, which could lead to challenges in managing large capital without a safety net or experience trading under the firm’s rules.
Example Firms: Top One Trader offers instant funding, appealing to traders who have confidence in their abilities and want to bypass evaluations entirely.
Key Factors to Consider When Choosing a Prop Trading Model
1. Trading Experience:
If you’re confident in your abilities and have a solid track record, instant funding could be your best bet for quick access to capital.
For traders who are newer to prop trading, 2-step challenges offer a more gradual way to prove your skills under different conditions.
2. Risk Appetite:
Traders who prefer lower initial risk might find 1-step challenges appealing since they require less time investment than 2-step models, but instant funding carries the least evaluation-related stress.
3. Psychological Comfort:
Some traders thrive under pressure and prefer the challenge of meeting specific targets, while others find the ongoing evaluation process stressful and would rather avoid it by paying for instant funding.
4. Budget:
If you’re operating on a smaller budget, a 1-step or 2-step challenge might make more sense as they require lower upfront costs. Instant funding, while offering immediate access, tends to have higher initial fees.
Conclusion: Which Prop Trading Model is Right for You?
The best prop trading model depends on your unique trading style, risk tolerance, and personal goals. If you’re looking for simplicity and a quicker route to funding, a 1-step challenge from firms like Top One Trader or Relentless might be the best fit. For traders seeking a more thorough evaluation with a proven track record, 2-step challenges from firms like FTMO or The 5%ers offer a more comprehensive approach. Finally, if you want to jump straight into live trading without evaluations, instant funding models provide that opportunity, but at a higher upfront cost.
Each method has its strengths and weaknesses, so it’s important to assess your trading psychology, strategy, and preferences before making a decision. Good luck with your prop trading journey!