Module 1 · Lesson 1

What is a prop firm?

Before you learn how to trade, understand what you're working toward. This lesson explains the prop firm model in plain English — including the specific rules you'll need to follow to pass a funded account evaluation.

The problem with trading your own money

Most people who want to trade face the same obstacle: capital. To make meaningful returns, you need a meaningful amount of money to trade with. If you have £1,000 and make a 10% return in a month, you've made £100. Impressive as a percentage — but not life-changing as an income.

The maths only works at scale. A 5% return on £100,000 is £5,000. Same skill, same percentage — very different outcome. This is where proprietary trading firms, or prop firms, come in.

Key concept

A prop firm provides capital to traders who can demonstrate disciplined, consistent trading. You trade their money, keep the majority of profits, and they take a cut for providing the capital and absorbing the risk.

How the evaluation works

To filter out gamblers from genuine traders, prop firms run evaluation programmes — commonly called "challenges". You pay a fee, trade a simulated account, and if you hit the profit target without breaking the rules, you receive a funded account.

Typical 2-step challenge structure
Phase 1
Challenge
Hit 10% profit target
Phase 2
Verification
Hit 5% — prove it repeatable
Result
Funded account
Trade up to £200k · keep 80-90%
Daily loss limit
5%
Breach once = fail immediately
Max total loss
10%
Static floor — never resets
Min trading days
4+
Can't pass on one lucky day

The rules — click each one to understand it

Most failures come not from bad trading but from breaking these rules. Click each rule below to understand exactly what it means in practice.

Daily loss limit
5% / day
›
Your account equity — including unrealised losses on open trades — cannot drop more than 5% below your starting balance for that day. On a £100,000 account, equity must never fall below £95,000 at any point during the session, even on an open trade that hasn't been closed yet.
Maximum total loss
10% overall
›
Your account balance can never fall below 90% of its starting value — ever, across the whole challenge. This is a permanent static floor. On a £100,000 account, your equity must never touch £90,000. Unlike the daily limit, this doesn't reset — it's permanent for the duration of the challenge.
Consistency rule
30–50% max day
›
On funded accounts, some firms require that no single trading day accounts for more than 30–50% of your total profit. This prevents passing by getting lucky on one big news trade. It forces genuine consistency over time — which is exactly what prop firms want to see.
Minimum trading days
4–7 days
›
You must trade on a minimum number of days during the challenge, even if you hit the profit target early. An account that hits 10% profit on day one still can't pass — you need to prove you can trade consistently over multiple sessions, not just get lucky once.

Why most traders fail challenges

The failure rate on prop firm challenges is high — most estimates put it between 80–90% of first attempts. The reasons are almost never about skill or strategy.

~80%
Fail due to overtrading or revenge trading after a loss
1 day
Is all it takes to blow a challenge with one bad session
£100–500
Typical challenge fee paid before you even start
The pattern that kills most challenges

A trader does well for two weeks, has one bad day, then tries to recover losses quickly by increasing position size. They breach the daily loss limit. The challenge ends. The fee is gone. This is why discipline matters more than strategy.

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