How to Manage Risk in One-Step vs. Two-Step Prop Firm Evaluations

Traders aiming to secure funding from a prop firm must navigate different evaluation structures, primarily the one-step challenge prop firm model and the 2-step evaluation process. Each structure comes with unique risk management challenges that traders must address to pass the evaluation and sustain a funded account.

Understanding the differences between these two models is essential for developing the right risk management approach. This article explores how traders can optimize their risk strategies in both one-step and two-step prop firm challenges.

Understanding the Risk Dynamics of One-Step Challenges

A one-step challenge prop firm allows traders to qualify for funding after passing a single evaluation phase. While this provides faster access to a funded account, it also comes with stricter risk parameters that traders must carefully manage.

Key Risk Management Challenges in One-Step Challenges

1. Lower Drawdown Limits – Many one-step challenges enforce tighter maximum drawdowns, requiring traders to maintain strict control over losses.
2. Higher Profit Targets – To pass the challenge, traders must often reach a higher profit target within a shorter period, increasing pressure and risk exposure.
3. Limited Room for Recovery – With only one evaluation phase, traders have fewer chances to recover from losses, making risk control essential.
4. Stricter Trading Rules – Some firms impose restrictions such as maximum lot sizes, news trading limitations, and consistency requirements, adding another layer of risk management complexity.

Risk Management Strategies for One-Step Challenges

1. Use Conservative Position Sizing
   • Since drawdown limits are stricter, traders should risk no more than 1% per trade to prevent account termination.
   • Keeping position sizes small allows for more flexibility and longevity in the challenge.
2. Focus on High-Probability Setups
   • Avoid unnecessary trades and concentrate on well-researched, high-probability setups.
   • Using a trading journal to track previous trades can help refine decision-making.
3. Implement a Strict Stop-Loss Strategy
   • Setting a fixed stop-loss for every trade ensures that no single loss significantly impacts the account.
   • Avoid moving stop-loss levels to prevent emotional decision-making.
4. Avoid Overtrading
   • Since profit targets are high, some traders make the mistake of overtrading to accelerate progress.
   • Instead, focus on quality over quantity by taking only well-confirmed trade setups.
5. Limit Exposure During High-Impact News Events
   • Many prop firms have news trading restrictions, so traders should check the rules before trading around major economic releases.
   • Reducing position sizes or staying out of the market during volatile events can help manage risk effectively.

Risk Dynamics in Two-Step Evaluations

A 2-step evaluation requires traders to pass two distinct phases before obtaining a funded account. The first phase typically involves achieving a set profit target, while the second phase tests consistency and risk management skills.

This evaluation method offers more room for risk control, but it also requires traders to maintain consistency across multiple phases.

Key Risk Management Challenges in Two-Step Evaluations

1. Multiple Phases Require Extended Consistency – Unlike the one-step challenge, traders must perform well over two evaluation periods.
2. Lower Profit Targets but Stricter Risk Rules – While the profit targets are generally lower in the second phase, firms often tighten risk controls to assess trader discipline.
3. Psychological Pressure to Maintain Performance – Since traders must remain profitable across both phases, managing emotions and avoiding overconfidence after passing phase one is crucial.
4. Longer Evaluation Periods Can Lead to Fatigue – The additional phase increases the time required to reach funding, making patience and focus essential.

Risk Management Strategies for Two-Step Evaluations

1. Adjust Trading Risk Based on Evaluation Phase
   • In Phase One, traders can be slightly more aggressive to reach the profit target efficiently.
   • In Phase Two, the focus should shift to capital preservation and consistency rather than rapid gains.
2. Maintain Stable Position Sizing
   • Avoid increasing position sizes after a profitable streak, as this can lead to excessive risk exposure.
   • Keep risk levels consistent across both phases to develop disciplined trading habits.
3. Use a Daily Drawdown Limit
   • Set a personal maximum daily loss limit to avoid breaching firm-imposed drawdown rules.
   • If a trader hits their limit for the day, stepping away from the market can prevent emotional trading mistakes.
4. Emphasize Trade Quality Over Quantity
   • Since consistency is crucial, traders should avoid forcing trades just to meet the target faster.
   • A selective, patient approach is more effective in securing funding in 2-step evaluations.
5. Develop a Routine to Manage Trading Fatigue
   • Since two-step evaluations take longer, having a structured daily routine can help traders stay focused and disciplined.
   • Taking breaks between trading sessions can improve long-term performance.

Which Risk Management Approach is Better for You?

Risk management in a one-step challenge prop firm differs significantly from a 2-step evaluation due to the time constraints, drawdown rules, and profit targets.

Traders who prefer a fast-paced, high-reward environment must be more aggressive yet disciplined when managing risk in a one-step challenge. This means keeping tight stop-losses, limiting exposure per trade, and avoiding overtrading to stay within risk limits.

In contrast, a 2-step evaluation rewards slow and steady performance, making it more suitable for traders who excel in consistency and long-term risk control. The key here is to adjust risk exposure according to each phase’s objectives and maintain a balanced approach to trade execution.

How Funding Pips Helps Traders Master Risk Management

Funding Pips, a top name in proprietary trading, supports traders by offering both one-step and two-step challenges. The firm provides traders with educational resources, risk management tools, and clear funding guidelines to help them succeed in passing evaluations.

With a structured approach to risk management, traders can enhance their trading discipline, control losses, and improve their chances of securing long-term funding.

Conclusion

Managing risk in prop firm evaluations requires a deep understanding of the evaluation structure, profit targets, and drawdown limits. The approach taken for a one-step challenge prop firm should be focused on precision, small position sizing, and high-probability trades, as the challenge is completed in a single phase.

For a 2-step evaluation, traders should prioritize long-term consistency, stable risk exposure, and capital preservation across both phases.

Regardless of the chosen evaluation model, strong risk management is the key to success in proprietary trading. By implementing effective trading discipline, stop-loss strategies, and structured trading plans, traders can increase their chances of passing challenges and securing a funded account.