The world of proprietary trading is becoming one of the most attractive paths for traders who want to grow their careers without risking huge personal capital. One of the most important components of this system is the Challenge Account. Firms like PAX MARKET FUNDS use challenge accounts to evaluate traders’ abilities, discipline, and consistency before giving them access to real funded capital.
In this long-form blog, we will break down what a challenge account is, how it works, why prop firms use it, and why it has become so popular among traders today.
What Is a Challenge Account?
A Challenge Account is an evaluation-based trading account provided by a prop trading firm, where traders must prove their trading skills by reaching profit targets and following risk management rules. It is the first step in obtaining a real funded trading account from firms like PAX MARKET FUNDS.
Instead of risking personal money, traders pay a small evaluation fee and demonstrate they can trade profitably and responsibly. If they pass the challenge, they qualify for a funded account with real payouts.
Purpose of a Challenge Account
Prop firms manage large trading funds and need talented traders who can handle professional-level trading conditions.
The challenge account helps the firm determine:
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Can the trader trade consistently?
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Do they understand risk management?
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Can they control emotions and psychology?
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Will they follow the firm’s rules and structure?
This evaluation is essential for protecting company funds while giving serious traders a fair path to funding.
How Does a Challenge Account Work?
Although the exact rules vary between prop firms, the structure is generally similar. Here is how a challenge account typically functions:
1. Choose an Account Size
Traders select their preferred challenge amount such as:
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$10,000
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$25,000
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$50,000
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$100,000
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$200,000+
This determines the profit target, drawdown limits, and challenge conditions.
2. Pay a One-Time Evaluation Fee
This fee is not a deposit or investment but a participation cost.
Many firms, including PAX MARKET FUNDS, refund the fee once the trader becomes funded and completes a successful payout.
3. Hit the Profit Target
Traders must reach a specific profit target within the challenge period.
| Phase | Goal | Time Limit |
|---|---|---|
| Phase 1 (Challenge) | ~8% profit target | 30–60 days |
| Phase 2 (Verification) | ~5% profit target | 30 days |
Some firms offer one-phase or no time-limit challenges for more flexibility.
4. Follow Risk & Trading Rules
Trading within rules is more important than hitting the profit target quickly.
Common rules include:
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Daily loss limit
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Maximum overall drawdown
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Profit targets
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Minimum trading days
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News trading limitations
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No gambling or reckless leverage
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Restricted EAs or strategies
Breaking these rules can result in challenge failure—regardless of profitability.
5. Get a Funded Account
Once a trader completes the challenge successfully and respects all rules, they receive a funded account where they trade real capital and earn payouts—often 80–90% profit share.