To get funding from a stock prop firm, all aspiring traders must go through the evaluation process. Therefore, it is important to understand this process and decide what works best for you.
Evaluation is a test of skills, where the stock prop firm gives you a goal to meet within a specific period. During this time, traders must show whether they have the skills to trade and consistently grow an account. At the same time, they must show that they can manage risk and keep the account from large drawdown.
The evaluation process is a significant part of starting your journey as a funded trader. However, most beginners get stuck at this level. Without the right preparation, you can spend too much money on repeating the evaluation process. This article will give you an in-depth analysis of the evaluation process so you can easily move to the funded stage.
THE EVALUATION PROCESS
The evaluation process is quite similar among most stock prop firms. First, traders must pay a fee depending on the amount of capital they want to trade to start working on an evaluation. The process then has major objectives.
PROFIT TARGET
Profit target
The profit target is the main objective of any prop firm evaluation. It is usually set as a percentage of the capital you are trading. Additionally, in most stock prop firms, it ranges between 6%-10%. To meet this objective, you must have a profitable strategy that will allow you to grow your initial capital. Meanwhile, most traders with poor strategies fail to meet the target.
DRAWDOWN LIMITS
Moreover, most prop firms will give you daily and maximum loss limits during the evaluation process. This ensures that you manage risk well and avoid big drawdowns.
Drawdown limits
For instance, with FTMO, traders get a daily loss limit of 5% and a maximum loss of 10%. Therefore, a loss of over 5% on a single day means failure.
Stock prop firms are strict about risk management because they focus on protecting their capital in case of a string of losses. Moreover, some funded traders might only be beginners who need guidance to manage risk properly.
TRADING PERIOD
Traders also get a trading period for completing the evaluation process. In the past, most prop firms gave traders only 30 days to complete their evaluations. However, things have changed, with most firms giving traders unlimited time to complete their challenge objectives.
Trading period
Meanwhile, some firms like Trade The Pool offer both options. Traders can choose between unlimited time and a period of 60 days. The unlimited option is more expensive but has bigger drawdown limits than the 60-day option.
MINIMUM POSITIONS/TRADING DAYS
Most stock prop firms require minimum positions or trading days to ensure consistency. You don’t pass an evaluation just by hitting the profit target. However, you must have opened a minimum number of positions or traded for at least four days or more. This filters out gamblers.
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TYPES OF EVALUATION STAGES
Different stock prop firms offer various types of evaluation stages. These include one-step, two-step and three-step challenges.
ONE-STEP EVALUATION
In a one-step evaluation, a trader gets funding after passing the challenge once. This makes it easy to start trading as a funded trader. However, these one-step challenges have smaller drawdown limits and stricter objectives. Nevertheless, they are the best for traders who are confident in their trading strategies.
1-step evaluation
Trade The Pool offers traders a one-step challenge with relatively tighter drawdown limits and a smaller profit target.
TWO-STEP EVALUATION
The two-step evaluation involves two stages before the funded phase. In this type of evaluation, traders must verify their trading skills before getting a funded account. However, the verification process is usually free and has a smaller profit target.
2-step evaluation
For instance, on FTMO, the first evaluation phase has a profit target of 10%. Meanwhile, the verification phase has a target of 5%.
THREE-STEP EVALUATION
The three-step evaluation is rare but also exists. In this case, a trader has to meet trading objectives three times before getting a funded account. This gives the prop firm maximum time to evaluate a trader’s skills. Moreover, it shows whether they can consistently grow an account in the long run.
Furthermore, some stock prop firms offer instant funding options for traders who are confident they can trade without an evaluation.
HOW TO PASS STOCK PROP FIRM EVALUATIONS
After learning all about the evaluation process, it is important to know how you can pass this stage and get funding.
- Develop or find a winning strategy. The most important tip to passing an evaluation is having a strategy that makes profits in the long run. This way, you can easily hit the profit target.
- Test your strategy. Before using your strategy, you must backtest it with the stock prop firm’s objectives to build familiarity and confidence.
- Manage risk. The biggest challenge for most traders is managing risk. However, to pass a prop firm challenge, you must learn to protect your capital while growing an account.
- Know all the prop firm’s rules. This will prevent you from failing a challenge because you violate simple rules like a mandatory stop loss.
- Control emotions. Before starting a challenge, it is important to set emotions aside and follow your strategy. This way, you will avoid impulsive moves that could lead to significant losses.
- Keep learning. The trading world is dynamic and constantly changing, with new ways of approaching the markets. Therefore, it is important to keep refreshing your skills to stay current and improve your performance.
CONCLUSION
The evaluation process is a big part of stock prop firm trading. It allows firms to find skilled traders who can grow their capital. They check profitability, risk management, and consistency, among other factors.
Furthermore, traders can choose to do the evaluation in one, two, or three phases. With the right skills and preparation, passing an evaluation and getting funding can be easy. However, traders must learn to manage risk, control their emotions and improve their strategies.
Join FTMO or TradeThePool today and start working on a challenge. Become a funded trader with the top prop firms in the industry.