Accounts: Proprietary trading or prop trading provides traders with a new way to start their trading journey even without having money to invest. This is the reason that this trading is getting more popular among traders because capital is the largest barrier in their trading career. These firms first take an evaluation process that shows the skills of traders.
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Two of the most popular funding models are the One Step Challenge and Instant Funded Accounts. Each model has its unique advantages and drawbacks. Which one do traders need to pick? You can’t get the answer within a single word because both of these are unique and have their way. Traders first need to understand both models and prefer those that they think are best for risk tolerance and their financial goals.
How do Prop Firms Work?
Proprietary trading firms provide traders with the amount of capital they need to trade in financial markets without risking their own funds. These firms earn a share of the profits generated by traders while providing them with a structured trading environment. There are different prop firms like two-step challenge prop firms, one-step challenge, and instant funded accounts. Each one has its own criteria but traders choose the one that aligns with their trading strategies and goals.
What are One-Step Challenge Prop Firms?
The One Step Challenge is a model where traders must pass a single evaluation phase before receiving access to a funded account. One-step challenge prop firms provide traders more flexibility to pass the challenge. Traders have just a single evaluation phase to prove their skills and get access to funded trading accounts. Unlike traditional two-step challenges, this model simplifies the evaluation process and makes it more accessible for many traders.
How It Works:
- Registration in which traders pay an upfront fee to enter the challenge.
- Evaluation phase in which traders provide their skills. Traders must achieve a predefined profit target while following specific risk management rules.
- Funded account access once the challenge is successfully completed. When traders receive access to a live funded account they can start their live trading.
- Profit sharing as traders keep a specific portion of the profits and the proprietary firm takes a percentage as their share.
Advantages:
- Lower evaluation hurdles as compared to two-step evaluations. The one-step model is easier to pass because traders have just a single phase.
- Less time-consuming and traders can get funded faster since they only need to complete one stage.
- Cost-effective because the upfront fee is mostly lower than traditional multi-step funding models.
- Flexibility as many firms help traders to use different strategies like scalping, day trading, and swing trading.
Potential Drawbacks:
- Profit targets sometimes become a hurdle as some firms set high-profit targets that make it difficult for traders to qualify.
- Strict drawdown limits as one-step prop firms have strict risk management rules and these strict rules lead to disqualification if not followed properly.
- Evaluation pressure is even with a single step because the need to pass an evaluation can create psychological pressure on traders.
Instant Funded Accounts: A Quick Entry to Capital
Instant Funded accounts provide traders with immediate access to a live trading account without requiring them to pass an evaluation. Instead, traders pay a fee to gain direct access to the firm’s capital.
How It Works:
- Registration in which traders choose an instant funding package and pay a one-time fee.
- Account activation as the firm provides immediate access to a live-funded account.
- Trading begins after account activation. They can start executing trades right away under the firm’s risk management guidelines.
- Profit sharing just like the One Step Challenge traders share profits with the prop firm.
Advantages:
- No evaluation is required as some traders avoid the stress of passing a challenge.
- Immediate access to capital and no waiting time means traders can start earning immediately.
- Predictable costs because the one-time fee structure eliminates the uncertainty of failing an evaluation.
- Good for consistent traders and if a trader already has a proven profitable strategy, this model helps them to capitalize on it without delay.
Potential Drawbacks:
- Higher initial costs as instant funding fees are typically higher than evaluation challenge fees.
- Lower profit split as some firms provide a lower profit share percentage to traders compared to challenge models.
- Stricter trading rules that traders need to follow. Instant accounts come with tighter restrictions on strategies like prohibiting high-frequency trading or news trading.
- Limited scaling because some instant-funded models do not provide any scaling opportunities as compared to challenge-based models.
One-Step Challenge vs Instant Funding: Which one to pick?
The decision depends on the preferences of traders. If traders are confident in their skills and can pass an evaluation with lower upfront cost then they need to choose a one-step challenge. One-step challenge prop firms are a better option for better long-term scaling opportunities and if you prefer a higher profit share. Instant funding is best if you want to start trading immediately without an evaluation. If you have a proven profitable trading strategy and you can afford the higher upfront fee. Now you can make decisions according to your preferences.
