What a funded trading account is, and how the evaluation works

A funded trading account is an arrangement in which a proprietary trading firm (a prop firm) lets you trade an account of a set size, say $100,000, and pays you a share of the profit you make on it. You do not deposit that $100,000. Instead, you usually pay a fee to take a test, called an evaluation or challenge, and only traders who pass receive the funded account.

That is the simple version. The details matter more than the headline, because they decide how much room you really have, what you can lose and whether you ever get paid. This guide walks through how the model works from both sides of the arrangement.

The short version

• You pay the firm a fee to attempt an evaluation on an account of a chosen size.
• During the evaluation you must reach a profit target without breaking the loss limits or any other rule.
• If you pass, you get a funded account with similar rules and no profit target, and you can request a share of the profit, often 80% to 90%.
• If you break a hard rule at any stage, the account is usually closed and the fee is gone.
• In most retail programs the account is simulated. Your trades are not sent to a real market, and the firm pays you from its own funds.

How the evaluation works

An evaluation is a trading test with written rules. The firm sets them, and they apply from your first trade. The core ones look similar across firms:

• Profit target. A gain you must reach, stated as a percentage of the starting balance. Ten percent of $100,000 is $10,000.
• Daily loss limit. The most you may lose in one trading day, often 3% to 5% of the starting balance.
• Maximum loss. The lowest your account may fall at any time, often 6% to 10% below the starting balance. Some firms fix this floor, while others move it up as you make money (a trailing drawdown).
• Minimum trading days. Some programs require you to trade on a set number of days, so a single lucky session cannot pass the test.
• Time limit. Many firms have dropped deadlines, but some still set one.
• Conduct rules. Restrictions on news trading, weekend holding, copy trading, some automated strategies and position sizes.

Evaluations come in one, two or occasionally three phases. In a two-step model you pass a first phase with a larger target, then a second phase with a smaller one. FTMO’s 2-Step, for example, sets a 10% target in the first phase and 5% in the second, with a 5% daily loss limit and a 10% maximum loss; the full rules are on the FTMO profile. One-step programs have a single phase, usually with tighter loss limits. The trade-offs are covered in one-step vs two-step challenges.

Futures firms work in a similar way but mostly use a single phase, smaller loss limits as a share of the account, and a drawdown that trails the end-of-day balance.

Who pays whom

The flow of money is the part new traders most often misread.

1. You pay the firm. The evaluation fee is paid up front, either once or, in some futures programs, as a monthly subscription. Some firms add an activation fee when you pass, and most sell resets or retakes if you fail.
2. The firm pays you, if you qualify. On the funded account you request a payout (some firms call it a reward) from the profit you have made. The firm pays your share and keeps the rest.
3. You never pay for trading losses. If the funded account loses money, the account is closed, but you do not owe the firm the loss. Your maximum cost is what you paid in fees.

Some firms return the evaluation fee with your first payout. FTMO, for instance, refunds the 2-Step fee with the first reward but labels its 1-Step and Instant fees non-refundable. Policies vary from firm to firm and between programs at the same firm, so read the refund terms before you buy. If you fail, the fee is usually not refunded at all.

Simulated capital versus live capital

The word “funded” suggests the firm hands you real money to trade. In most retail prop programs, especially in forex and crypto, that is not what happens. Your account is a demo or simulated account. Prices come from real market data, but your orders are not filled in the market. The profit on your screen is a figure the firm uses to calculate what it owes you.

What the firm does with that information varies. Some firms say they copy the trades of consistent traders into live accounts of their own. Others keep everything simulated and pay traders from company revenue. A smaller number move proven traders onto a live account after a track record. Topstep, for example, places traders who pass on a simulated Express Funded Account and says traders with a consistent record may be moved up to a Live Funded Account; the details are on the Topstep profile.

None of this makes a simulated account worthless. A payout is real money if the firm pays it. But it does mean two things:

• Your payout depends on the firm’s willingness and ability to pay, not on a regulated broker holding your funds.
• Fills in a simulated account can differ from fills you would get in a live market, and firms often prohibit strategies that exploit those differences.

How prop firms make money

A prop firm that sells evaluations has three main sources of revenue.

• Evaluation fees. Usually the largest. Many more people buy evaluations than pass them, so fee income from traders who fail pays for the payouts made to those who succeed.
• Resets, add-ons and activation fees. Paying to restart a failed account, to remove a minimum day count, to widen a loss limit or to raise a profit split.
• Trading profits, where they exist. Firms that place real trades based on successful traders’ activity can earn from those positions.

Because fees from failing traders fund most of the system, the business only works if most traders fail. That is not a hidden scandal. It is the arithmetic of the model, and firms set targets and loss limits with it in mind. It also explains why rules change often: a firm adjusts its terms when its payout costs drift away from its fee income.

For you, the practical point is simple. Most traders do not pass evaluations, and fees are usually not refunded. Treat any fee as money you may not see again.

A worked example on a $100,000 account

The numbers below are an illustrative example, not a specific firm’s offer.

• Account size: $100,000
• Evaluation fee: $500, refunded with the first payout
• Phase 1 target: 10% ($10,000)
• Phase 2 target: 5% ($5,000)
• Daily loss limit: 5% ($5,000)
• Maximum loss: 10% ($10,000), so equity may never fall below $90,000
• Profit split on the funded account: 80%

Phase 1. You trade for a few weeks and reach $110,000 without ever losing $5,000 in a day or falling to $90,000. You pass.

Phase 2. The account resets to $100,000. You need to reach $105,000 under the same loss limits. You pass again.

Funded. You receive a new $100,000 account. There is no target now, but the same loss limits apply. After a month you are up $4,000 and request a payout. At an 80% split you receive $3,200, plus the $500 fee refund in this example. The firm keeps $800.

Now the more common version. You lose $5,200 on a bad day in Phase 1. The daily loss limit is breached and the account is closed. The $500 is gone. If you buy a second attempt and fail again, you have spent $1,000 without earning anything.

What changes after you pass

Passing is not the end of the rules. A few things usually happen between the last trade of the evaluation and the first payout:

• Review and identity checks. Most firms review a passed account before issuing the funded one, and ask for identity documents before the first payout. A review can also reject a pass if the firm finds a banned strategy.
• A new account and an agreement. You are typically issued a fresh account at the starting balance and asked to accept a trader agreement. Read it, because it sets out when the firm can refuse or reverse a payout.
• Some rules get stricter. The profit target goes away, but some firms add news restrictions, weekend restrictions, minimum days per payout or consistency rules on the funded stage.
• Payout timing. The first payout is often available only after a waiting period, such as 14 days from the first funded trade, and later ones follow a set cycle.

What to understand before you buy

Before paying for any evaluation, make sure you can answer these questions from the firm’s own rules.

• How is the maximum loss measured? Static, trailing your balance, trailing your equity or trailing your end-of-day balance? The difference can halve your real room. See drawdown rules explained.
• How is the daily loss measured? From the day’s starting balance, from equity, or from whichever is higher? Do open losses count?
• What can end the account besides losses? News windows, weekend holding, lot size limits, banned strategies and inactivity.
• When and how are payouts made? First payout timing, minimum amounts, caps per request, consistency rules and payout methods. Our payouts page summarises them by firm.
• Is the fee refundable, and when? Only on passing, only with the first payout, or never?
• Can you trade from your country and on your platform? Check restricted countries and supported platforms before paying.
• How long has the firm operated, and how does it handle disputes? A clear rulebook and a record of paying matter more than a large headline account size.

You can compare these terms across firms on the challenges comparison page.

It is not a job or an investment

A funded account does not make you an employee of the firm. You are usually treated as a customer or independent contractor, with no salary, no benefits and no protection if the firm changes its rules or closes. Payouts may be taxable where you live, so check with a qualified adviser. And an evaluation fee is not an investment. It buys a test under conditions the firm controls.

Seen that way, an evaluation lets you trade a larger notional account than you might fund yourself, for a fixed and known cost. Treated as a shortcut to income, it usually ends in a string of failed attempts.