This is the first hurdle. The trader is given a simulated account with a specific starting balance (e.g., $50,000, $100,000) and a set of profit targets and risk management rules to follow within a defined time period (e.g., 30 days).

Once you pass Phase 1, you enter a second, often shorter, challenge (e.g., 15-30 days). The rules are usually similar but may have a slightly lower profit target. The purpose of this phase is to verify that your success in Phase 1 wasn’t a fluke and that you can trade consistently and within the risk parameters.

After successfully navigating both phases, you “graduate” to a live, funded account. You are now trading the firm’s capital under a formal profit-sharing agreement.