A two step prop firm challenge is a trading evaluation divided into two phases. Traders must meet the required profit target in each phase while staying within the firm's risk rules. After completing both stages, they may become eligible for a funded account, depending on the firm's terms.
For traders exploring proprietary trading, the two step challenge is one of the most common evaluation structures. Instead of being judged on a single period of trading, you have to demonstrate your ability to manage risk and reach defined targets across two separate stages.
But how exactly does a two step prop firm challenge work? And what should you know before starting one?
A two step prop firm challenge is an evaluation where traders progress through two separate phases.
The first phase usually focuses on reaching a specific profit target while staying within the maximum daily loss and overall drawdown limits. Once Phase 1 is completed, the trader moves to Phase 2.
The second phase generally has a lower profit target, while the trader must continue following the prop firm's trading rules.
After successfully completing both phases, the trader may receive access to a funded account or simulated funded account, depending on how the prop firm structures its program.
The exact targets, drawdown limits, minimum trading days, trading restrictions, and other requirements vary between firms. Therefore, always read the specific terms before starting a two step challenge.
Although the rules differ between prop firms, the basic process is straightforward.
You first select the account size and challenge type that fits your trading approach.
Different account sizes may have different fees, profit targets, and risk limits. Before purchasing, understand how much you are expected to make and how much you are allowed to lose.
Phase 1 is the first evaluation stage.
You need to reach the required profit target without exceeding the firm's daily loss or maximum drawdown limits. Some two step prop firm programs may also have minimum trading day requirements.
The goal is not simply to reach the target as quickly as possible. You also need to demonstrate that you can trade while respecting the account's risk parameters.
Once you complete Phase 1, you move to the second stage.
Phase 2 usually has a lower profit target than Phase 1. However, you still need to follow the applicable risk rules and other account conditions.
This stage gives traders another opportunity to demonstrate that their performance can continue under the challenge's rules.
After meeting the requirements of both phases, the evaluation is complete.
Depending on the prop firm's model, you may then receive access to a funded or simulated funded account and become eligible to trade under the firm's applicable conditions.
Every firm can set its own rules, but several requirements are commonly found in a two step challenge.
The profit target is the amount you need to achieve during each phase.
For example, a prop firm may require a higher target during Phase 1 and a lower target during Phase 2. You should always check the exact percentage and whether there are additional requirements before starting.
The daily loss limit determines how much you can lose within a trading day.
If you exceed this limit, you may fail the challenge even if your overall account balance remains above the maximum drawdown level.
Maximum drawdown is the maximum overall loss allowed on the account.
This is one of the most important rules to understand because exceeding it can end the evaluation.
Also Read: How to Navigate Drawdown Limits in the Prop Challenge
Some two step prop firm programs require traders to complete a minimum number of trading days before they can pass a phase.
This means reaching the profit target in a single trading session may not be enough if the account has a minimum trading day requirement.
Depending on the firm, there may also be rules around news trading, weekend positions, Expert Advisors, copy trading, instruments, or other trading activities.
Always check the current rules for your specific two step challenge rather than assuming that every prop firm follows the same conditions.
The main difference is the number of evaluation stages.
A two step challenge requires traders to complete two phases, while a one step prop firm challenge requires completion of a single evaluation stage.
A two step structure can give traders more than one stage to demonstrate their trading process. However, it also means there are more requirements to complete before reaching the funded stage.
When comparing a two step prop firm with a one step challenge, look beyond the number of phases. Compare the profit targets, drawdown limits, daily loss rules, minimum trading days, fees, payout conditions, and trading restrictions.
A good approach starts with understanding the rules before placing your first trade.
Know what setups you trade, which markets you focus on, and what conditions need to be present before you enter.
Avoid changing your strategy simply because you are trying to reach the challenge target faster.
Position sizing is especially important during an evaluation.
You do not need to risk a large percentage of the account on every trade. A smaller position can give you more room to handle losing trades while staying within the account's drawdown limits.
Once you are close to the profit target, it can be tempting to take additional trades simply to finish the challenge.
This can work against you. Continue following your trading plan instead of increasing your risk because you are close to passing.
Also Read: Why Most Prop Traders Overtrade and How to Avoid It
Keep a record of your trades, including entries, exits, position sizes, reasons for taking the trade, and outcomes.
Reviewing your trading journal can help you identify repeated mistakes and understand whether you are following your plan.
Trying to reach the profit target quickly can lead to oversized positions. One large losing trade can put significant pressure on the remaining drawdown available.
A trader may focus on the overall drawdown and forget that the daily loss limit can be reached much sooner.
Always know both limits before starting your trading session.
A losing trade does not necessarily mean your strategy has stopped working. Constantly switching approaches can make your trading inconsistent.
If the challenge has a minimum trading day requirement, avoid taking low-quality trades simply to increase your trading-day count. Follow your normal setup criteria.
Give it a Read: Prop Firm Payout Rules Explained: Profit Splits, & Minimum Days
Whether a two step challenge fits you depends on your trading style, risk management, and preference for evaluation structures.
If you prefer a staged evaluation where you can demonstrate your approach across two phases, a two step challenge may fit your process.
Before choosing one, carefully review the firm's rules and ask yourself:
Do the profit targets fit my normal trading approach?
Are the drawdown limits realistic for my position sizing?
Do I understand the daily loss calculation?
Are there minimum trading day requirements?
Are there restrictions that affect my strategy?
Do I understand the fee and payout structure?
Taking time to answer these questions can help you understand what you are signing up for before you place your first trade.
A two step prop firm challenge is designed around two evaluation phases. You need to reach the required target in each stage while staying within the firm's risk and trading rules.
The key is not to treat the challenge like a race. Understand the rules, build a trading plan, manage your position size, and focus on executing your strategy consistently.
Whether you choose a best prop firm or another evaluation structure, make sure you understand the complete terms before getting started. A clear understanding of the challenge can help you approach each phase with a more structured trading process.
About the Author: Sam Saleh
Sam Saleh, a London-based trader, began his trading journey at 19 while studying Business at the University of Bedfordshire. With expertise in trading and a background in marketing, he now coaches at Hola Prime, where he develops educational content aimed at building trader confidence, consistency, and financial literacy.
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