What Are Prop Firm Rules?
How Proprietary Trading Firms Operate
Proprietary trading firms or prop firms, use their own money to trade in different financial markets. They do not invest money for other people; they trade only with their funds, hiring traders to follow the firm’s aims. This setup gives traders access to large amounts of capital, advanced trading systems plus other resources that might not be available otherwise.
Evaluation vs Funded Accounts
A forex trader usually starts with an evaluation period when working with a prop firm. In this stage traders must show they can meet set profit targets, follow risk protocols and keep steady results. Once the trader proves their skill, they move to funded accounts, which allow them to use the firm’s money following agreed rules and profit-sharing plans.
Why Rules Vary Between Firms
Rules differ from one firm to another because each firm chooses its risk limits, business plan plus strategic targets. The differences depend on the markets traded, how the firm assigns capital as well as its risk management approach. Traders need to learn the exact rules of the firm they join to work correctly and match their trading style.
Key Trading Rules to Pass a Prop Firm Challenge
Minimum Profit Targets
Prop firms ask traders to reach specific profit goals during the test phase to check if they can earn money. These goals come as a percentage of the starting capital and must be reached within a set time. For example a firm may ask for a 10 % gain over 30 days. Meeting these goals shows the trader’s skill and potential to earn.
Maximum Drawdown Rules (Daily & Overall)
To protect their money, prop firms set loss limits. Daily limits stop a trader from losing too much in one day and overall limits restrict the total loss during the test. Following these limits is important because breaking them can end the test.
Maximum Lot Sizes
Firms set limits on lot sizes to control how much a trader uses on each trade. This rule stops traders from taking too large risks that can harm the account’s balance. By limiting lot sizes prop firms support careful trading and good risk handling.
Mandatory Stop-Loss Requirement
Many prop firms require traders to give orders that sell a position if losses grow too high. This rule makes traders set their risk before a trade, so they do not lose too much if the market changes suddenly. Using these orders remains a basic part of safe trading.
Risk Per Trade & Smart Risk Management
Prop firms usually allow traders to risk only a small amount on one trade, suggesting not to risk more than 1-2 % of the account balance each time. This method reduces the effect of one loss also helps the account last longer.
Consistency Rules (Trading Days & Lot Sizes)
Consistency remains important in prop trading. Firms may require traders to work on a minimum number of days and use the same lot sizes. This rule stops uneven trading and makes sure profits come from steady methods rather than rare big trades.
Minimum Holding Time for Trades
Some prop firms set a rule that traders must keep a trade open for a set period. This rule aims to stop quick trades and guide traders toward a longer-term approach that fits the firm’s views.
Scaling Plans & Profit Splits
When traders succeed in the test, prop firms offer plans that allow them to work with bigger amounts of money as they prove steady gains. Profit splits explain how traders share profits with the firm and these terms differ between firms. Knowing these details helps traders plan and set proper goals.
Hidden or Overlooked Rules That Can Lead to Disqualification
Unpublished Risk Desk Rules
Some prop firms use internal risk checks that traders never learn. These hidden rules shape decisions on trader reviews as well as funding. Traders must speak clearly with the firm to know what is expected.
“No Gambling Mentality” and Psychological Guidelines
Prop firms stress careful trading and set rules to stop gambling-like acts. Traders who show wild or dangerous moves might lose their chance to trade. Following a clear trading plan and keeping calm prove important for a solid trading life.
Restrictions on Trading Style
Some trading methods face limits or bans by prop firms because they carry clear risks.
Martingale Strategy
The Martingale method, where traders double their bet after a loss, usually meets disapproval or a ban by firms for its risky nature and chance of big losses.
Grid Systems
The grid method where traders set buy then sell orders at fixed steps, can cause big risks when the market moves quickly. Some firms limit or stop this method.
Hedging Policies
Although hedging works as a risk tool, some firms set clear rules about its use. Traders must learn the firm’s view on hedging to follow rules.
Technology Restrictions
Firms set limits on some tools to keep their trading systems safe.
Expert Advisors (EAs)
Some firms check or limit the use of automated trading programs to match risk rules.
Trade Copiers
Services that copy trades in many accounts may face bans to block unapproved methods or risks.
Use of Signal Services
Using outside signal feeds sometimes meets limits so that traders must make decisions from their own work while meeting firm rules.
Broker & Platform Specific Parameters
Demo vs Live Accounts
During tests traders use demo accounts that mimic live trades. When they succeed they move to live accounts with real money. Knowing the difference between these setups helps when applying a plan.
Trading Platforms Used (MT4, MT5, etc.)
Prop firms choose the trading platforms traders must use, like MetaTrader 4 or MetaTrader 5. Knowing the required platform helps achieve smooth trade work while following the firm’s tech standards.
Trading Instruments & Allowed Assets
Firms set the list of assets traders may use, based on risk checks and market focus. Meeting these lists is key for following rules and matching plans.
Leverage Rules & Margin Requirements
Leverage boosts trading positions but also ups risk. Prop firms decide specific leverage ratios and margin rules to limit exposure. Traders need to know and follow these limits to keep their accounts safe.
Slippage, Spreads, and Execution Speeds
These factors can affect trade results a lot, especially for short-term plans. Slippage happens when orders fill at an unexpected price, mostly during high market movement. The gap between bid plus ask prices, change with instruments and market state. Prop firms may give acceptable ranges or use brokers who cut spreads and quicken fills. Traders must include these factors in their plans plus avoid trades when slippage or wider spreads seem likely.
News & Time-Based Restrictions
News Trading Limitations
Many prop firms hold back on deals during major economic news such as Non-Farm Payrolls, CPI releases or central bank talks. This happens because price moves become wild, causing big losses. Some firms set a rule that stops starting or ending trades a few minutes before or after such events. Knowing the economic calendar helps plan trades outside these times.
Weekend and Overnight Holding Rules
Keeping positions over the weekend or after hours adds risk because of sudden price gaps and little market cash. Some firms do not allow this at all; others permit it under strict rules or during the funded phase. Traders need to plan exit steps and follow the rules.
Daily Trading Window & Market Hours
Prop firms set times for trades when market cash is high. This ensures trades happen in busy sessions like London or New York. Breaking this rule by trading during quiet times may risk account closure.
Tips to Pass Prop Firm Evaluations
Creating a Funded Trader Plan
Do not approach a prop firm challenge without a clear plan; failure is likely. Traders must form a funded trader plan that lists target markets, chosen strategies, risk per trade, daily routines plus performance goals. Treat the evaluation as a business project – set goals, check progress, then adjust the approach using performance data.
Practicing Risk Management Daily
Risk management remains the key skill in prop trading. Ensure every trade meets a set risk-to-reward ratio, uses stop-losses along with follows daily drawdown limits. Use demo challenges to build discipline and form reliable habits that apply later.
Avoiding Common Mistakes
Many pitfalls may ruin a trader’s chance in an evaluation: trading too much, revenge trades, ignoring risk limits, straying from the strategy and failing to read rules thoroughly. To steer clear of these, keep a trading journal, review performance often, then ask for rule clarifications if needed.
Staying Consistent with Lot Size & Strategy
Prop firms prize consistency over one lucky win. Changing lot sizes switching strategies at random or risking a large part of capital may raise doubts. Traders must show control by choosing a steady position size and following the main strategy throughout the challenge.
Final Thoughts: Are You Ready for a Prop Firm Challenge?
What to Do Before You Start
Before you join a prop firm test, complete your research. Evaluate prop firms study their rules carefully and check trader feedback. Begin with a demo or trial test to learn the platform, order execution plus support response rates. Solid groundwork builds belief while lowering the chance of accidental rule breaches.
Best Practices After Getting Funded
Receiving funds signals a new start. Traders need to show self-control plus steady results. Remove profits with care, avoid ease plus sharpen your skills. Some firms might raise account limits or improve profit splits over time, rewarding steady results along with earnings.
Continual Compliance with Rules
Even with funds available, rule breaches may lead to account closure. Traders must learn of any rule updates, keep in touch with the firm plus examine trading habits to check they follow firm guidelines. Approach every trade with the same self-control used in testing to ensure long-term survival plus success.
FAQ
Traders often fail when they break risk limits such as the maximum daily or overall loss. Many aim for profit while forgetting that a single slip of these limits – however good a trade might be – can end their participation immediately. Skill in managing risk stands above all in this business; without following these strict rules, no level of technical skill prevents failure.
This depends on the firm. Some firms let traders use automated systems if they follow specific rules plus avoid system flaws. Other firms do not allow them at all during tests to confirm the trader shows real skill rather than relying on computers. Confirm the firm’s policy before using automation to keep your account safe.
Trading when big news happens usually faces limits. Many firms set a no-trade time from two to five minutes before until after the news. This rule exists because news can drive wild price moves that break loss limits. Not following this rule can result in immediate failure.
Not in all cases. Many firms stop traders from keeping positions overnight or across weekends during tests. This is because markets may open with big gaps that ignore stop orders, which could harm the firm’s money. Some firms let traders keep positions overnight or during weekends later but under strict rules or special cases. Check the firm’s policy closely.
