The paid test a prop firm uses to screen traders: hit a profit target within the drawdown and rule limits to earn a funded account.
Evaluations run on simulated accounts. You must reach the profit-target without breaching the daily-drawdown or max-drawdown limits, and often while satisfying a consistency-rule and minimum trading days. Fail and you buy a reset or a new evaluation.
The fee is the firm's revenue. Evaluations reward traders who can follow rules under pressure more than traders who can make money over years.
Example: $100,000 account, target $6,000 (6%), trailing drawdown $3,000 (3%). That is a 2:1 ratio of required gain to allowed loss, which shapes how aggressively you can trade.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Equity curve and drawdown. An account balance plotted month by month. The fall from the $16,000 peak to the $12,000 trough is a 25% drawdown, and the shaded area lasts until the balance climbs back to the old peak.Risk and reward on one trade. One trade on a price scale: the entry sits 2.00 points above the stop and 6.00 points below the target, so the shaded reward band is three times the risk band. The ratio compares what is lost if the stop is hit with what is gained if the target is reached.
Educational only, not advice. Spotted an error? Post in Site Feedback.