6 Most Common Reasons Traders Fail Prop Firm Challenges (2024)

Prop firm challenges aren’t always easy for traders. Of course, there is a huge number of variables in this and there are some lessons traders should take away to improve their chances of passing and getting funded!At Lux Trading Firm, our Elite Traders Club has the highest pass rate in the industry – so we know what we’re talking about!

The most common reasons traders fail prop firm challenges are simply overleveraging their trades, not understanding the rules, and not having a profitable trading strategy.

In this article, we’ll break down the 6 most common reasons traders fail prop firm challenges and what you can do to avoid this happening to you. So, let’s get into it!

Why Do Traders Fail Prop Firm Trading Challenges?

The percentage of traders that pass prop firm challenges greatly depends on the prop firm in question. Prop firms with unclear rules or strict time limits on challenges will see fewer traders getting funded, than a prop firm like Lux Trading Firm that has clear rules and no time limits.As a trader, it’s your responsibility to work with a prop firm that best suits your needs as a trader. You’ve got to keep in mind that several prop firms only get paid from traders losing challenges, so they make it as hard as possible to succeed.

On the flip side, real prop firms get paid from traders succeeding in the markets – so they’ll make it as easy as possible for consistently profitable traders to pass and get funded.

So, let’s break down the errors traders are making in the markets…

  1. Lack Of Understanding Of The Rules

Every prop firm in the industry has rules for traders to follow. The simplicity of these rules and the fairness will depend on the firm you’re looking to engage with.Traders often ‘gloss over’ the rules and don’t spend a great deal of time reading through them. If you’ve looked at prop firm reviews on TrustPilot, you’ll see numerous traders outraged that they have had their accounts taken or failed challenges by violating rules they didn’t know existed.The blame here is on both parties. Reputable prop firms have simple rules and no additional rules designed to ‘catch out’ traders. However, traders need to ensure they’re also reading the rules of engagement before even purchasing a challenge.

Take this seriously if you’re looking to succeed for the long term!

  1. Being Too Aggressive On Positive Sizing

Using a lot size that is too large per trade is something traders frequently do when they have the profit target in mind. However, this frequently ends up costing traders their funded accounts.Your main focus should always be on staying alive in the markets and using as little risk as possible, over the long term.By conducting a thorough back test before obtaining funding, you’ll understand your maximum drawdown and losing streak in the few hundred trades.Use that information to assume you’ll hit that maximum drawdown streak and model your risk per trade accordingly. This should keep you as ‘safe’ as possible. We have an article detailing how to manage drawdown during a prop firm challenge, that may be worth a read!

  1. Not Having A Trading Plan

You would be surprised at the number of traders that apply for prop firm funded accounts with no clear trading plan in mind. They have no idea of:

  • Trading strategy
  • Risk management plan
  • Trading psychology
  • Daily loss strategy
  • When to trade

Not knowing all of these factors is a huge issue and coupled with the increased stress of trying to get funded, it doesn’t take long for these traders to completely unravel. When trading your own capital or funded accounts, you need to have a trading plan built for success, so you can remove all of those pesky decisions every day. The less you need to think about as a trader, the better!

  1. Using An Unprofitable Trading Strategy

Some traders just do not have a profitable trading strategy, when traded over hundreds of trades. This is where the majority of unprofitable retail traders sit.Before embarking on obtaining funding, you should have already conducted a very strict back test of your strategy, as objective as possible, over hundreds of trades to establish whether your trading system is actually profitable.If not, tweaks may have to be made before looking at funding options.Thankfully, in this day and age, there are many reports published online from trading firms with strategies outperforming the market every year. They’re usually free to get your hands on and start testing!Many traders have a winning streak of a few trades using poor risk management, seek funding and then get surprised when their strategies aren’t working – you need to take it much more seriously than this.

  1. Having An Unavoidable Losing Streak

Some traders are profitable but just unfortunate and see a large/prolonged losing streak when applying for funded trading accounts.This is just a part of the game, and it shouldn’t deter you as a trader.

Firstly, you need to have an idea in mind (following your back test), of your potential maximum losing streak over the last few years.Once you have this in mind, you can set your risk per position accordingly to mitigate the chance of violating your account draw down as much as possible. Even with the best risk management and will in the world, some profitable traders will still see a large losing streak and violate account rules. If you’re consistently profitable, though, it’s worth ‘getting back on the horse’ without changing your strategy!

  1. Using The Wrong Prop Firm

As a trader, you need to conduct thorough due diligence on the prop firm you are signing up with. Typically, there are two types of online prop firms we see in the industry:

  • Demo Prop Firms
  • Real Money Prop Firms

Demo money prop firms only make money from traders failing trading challenges. Therefore, they’re incentivized to make the challenges as hard as possible to pass to drive revenue growth.Real money prop firms like Lux Trading Capital only generate revenue through profit splits shared with profitable traders. Hence, we provide all the tools, mentorship, training, analytics, and trading environment to give us as many profitable traders to work with as possible.

Once you understand this, you can make informed decisions as to where you’re placing your trust. Don’t get fooled by seeing a $400,000 payout on Instagram – oftentimes, this cannot be replicated by the majority.

In Summary – What Are The Reasons Traders Fail Trading Challenges?

In conclusion, these were some of the most common reasons as to why traders are failing prop firm funded challenges and how you can avoid these mistakes happening to you!

Are you interested in becoming a prop firm funded trader? Work with Lux Trading Firm now!

6 Most Common Reasons Traders Fail Prop Firm Challenges (2024)


6 Most Common Reasons Traders Fail Prop Firm Challenges? ›

The most common reasons traders fail prop firm challenges are simply overleveraging their trades, not understanding the rules, and not having a profitable trading strategy. In this article, we'll break down the 6 most common reasons traders fail prop firm challenges and what you can do to avoid this happening to you.

What percentage of traders pass prop firm challenge? ›

The article from Lux Trading Firm provides slightly different results. According to it, 4% of traders, on average, pass prop firm challenges. But only 1% of traders kept their funded accounts for a reasonable amount of time.

Why do 90% of traders fail? ›

Without a trading plan, retail traders are more likely to trade randomly, inconsistently, and irrationally. Another reason why retail traders lose money is that they do not have an asymmetrical risk-reward ratio.

What is the number one reason why traders fail? ›

Lack of Knowledge and Preparation: Many traders enter the market without sufficient understanding of market dynamics and trading strategies. This lack of knowledge can lead to poor decision-making and significant losses.

What is the failure rate of prop traders? ›

Understanding the Prop Firm Challenge

At its core, the prop firm challenge can be a way for prop firms to make money from failed challenges. This is because some sources have the failure rate of prop trading challenges at 90%. So for every 10 traders that buy a challenge, 9 will fail.

Why do most people fail prop firm challenges? ›

The most common reasons traders fail prop firm challenges are simply overleveraging their trades, not understanding the rules, and not having a profitable trading strategy. In this article, we'll break down the 6 most common reasons traders fail prop firm challenges and what you can do to avoid this happening to you.

How many traders fail FTMO challenge? ›

The FTMO challenge has a reputation for being extremely difficult to pass. Across FTMO's various account levels, it is estimated that only around 10% of traders are able to successfully complete the evaluation and become a funded trader. This means approximately 90% of those who attempt the challenge end up failing.

What is 90% rule in trading? ›

The 90 rule in Forex is a commonly cited statistic that states that 90% of Forex traders lose 90% of their money in the first 90 days. This is a sobering statistic, but it is important to understand why it is true and how to avoid falling into the same trap.

What is the number one mistake traders make? ›

Studies show that the number one mistake that losing traders make is not getting the balance right between risk and reward. Many let a losing trade continue in the hope that the market will reverse and turn that loss into a profit.

Why do 99% of traders fail? ›

The most common reason for failure in trading is the lack of discipline. Most traders trade without a proper strategic approach to the market. Successful trading depends on three practices.

Why 95% of traders fail? ›

The emotional aspect of trading often leads to irrational decisions like panic selling. When the market moves unfavourably, many traders, especially those who are inexperienced, tend to panic and exit their positions hastily. This panic selling often occurs at the worst possible time, leading to significant losses.

What's the hardest mistake to avoid while trading? ›

Biggest trading mistakes and how to avoid them
  • Over-reliance on software. ...
  • Failing to cut losses. ...
  • Overexposing a position. ...
  • Overdiversifying a portfolio too quickly. ...
  • Not understanding leverage. ...
  • Not understanding the risk-reward ratio. ...
  • Overconfidence after a profit. ...
  • Letting emotions impair decision making.

Why do 90% of day traders lose money? ›

One of the biggest reasons traders lose money is a lack of knowledge and education. Many people are drawn to trading because they believe it's a way to make quick money without investing much time or effort. However, this is a dangerous misconception that often leads to losses.

Why do traders fail prop firms? ›

- Traders in prop firms often have limited control over the firm's capital. They may need to deposit their own money as collateral or risk management. - Additionally, payouts are subject to the firm's rules, which may restrict a trader's access to profits.

How to pass prop firm challenge? ›

Tips for Passing a Prop Firm Trading Challenge
  1. Understand the Rules of Engagement: ...
  2. Master Your Trading Strategy: ...
  3. Risk Management is Non-Negotiable: ...
  4. Leverage Your Analytical Skills: ...
  5. Stay Disciplined and Patient: ...
  6. Continuous Learning is the Key: ...
  7. Embrace Feedback and Adapt: ...
  8. Simulate Real Trading Conditions:
Feb 5, 2024

Does prop firm really pay? ›

Yes, prop firms do pay. While there are some scams out there popping up everyday, reputable prop trading firms like True Forex Funds, FTMO,5%ers,FundedNext are legitimate and pay traders according to their profit-sharing agreements. As for True Forex Funds, I can vouch for their credibility.

How many people pass the FTMO challenge? ›

There is estimated to be a 90% fail rate of traders that take the FTMO challenge. The reason behind this is due to traders chasing the profit target with a time restriction in place. A trader doesnt know when a winning streak might occur, or when they may take a string of drawdowns.

Is it hard to pass a prop firm challenge? ›

DataLight provides unique data on market, tokens,…

If so, then you may have heard about the prop firm challenge. This is a popular way for traders to prove their skills and potentially secure funding from a prop firm. However, passing this challenge can be quite daunting and requires a lot of hard work and dedication.

What is the success rate of prop firm evaluation? ›

It is estimated that only 4% of Forex traders succeed with prop firm challenges, and only 1% of traders can generate profits consistently without violating any rules.

Is it possible to pass the prop firm challenge? ›

With the Prop Firm challenges, it's not just about failing or winning. You must be profitable and fulfill certain trading objectives which makes it even harder. Less than 1% of traders who attempt the challenge pass and get funded. It's best to invest in a few challenges.

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