Prop Firm Rules & Violations
Explained

The daily drawdown rule caps the maximum amount a trader can lose in a single trading day. Most firms set this between 4–5% of the account balance. Breaching this limit results in immediate account termination, regardless of overall account health.

The maximum drawdown rule defines the total loss limit allowed across the lifetime of the account. This is either static (measured from initial balance) or trailing (follows equity highs). Most firms set this at 8–10%.

Trailing drawdown moves upward as your account equity grows, making it progressively harder to hit as you profit. Unlike static drawdown, the danger zone follows your peak equity. It's the stricter of the two models.

An equity lock (also called a stop-out level) is an automatic mechanism that closes all open trades once your account equity hits the drawdown limit. It's an automated safety net that prevents traders from manually staying in losing positions past the limit.

Some prop firms limit the maximum lot size per trade or per symbol to prevent over-leveraged single positions that could blow the account in one candle. This rule is more common on instant funding accounts.

Certain prop firms enforce a maximum risk-per-trade rule, requiring traders to limit their exposure on any individual position. This is usually expressed as a percentage of the account balance and is designed to prevent single catastrophic losses.

A small number of prop firms mandate that every trade has a stop-loss attached within a certain time of opening. This protects both the trader and the firm from extreme gap risk or black swan events.

A margin cap limits how much of your account you can commit as margin on a single instrument. PropXP, for example, caps margin use at 25% of account size per instrument — single trade or combined simultaneous positions.

A violation triggered when 80%+ of a trader's volume or trades are on a single instrument.

The most common concentration threshold — no more than 80% of trades on one asset.

Prop firm policy flagging traders who use non-systematic, high-risk betting behaviors.

Whether prop firms require a stop loss to be placed on every trade.

Many prop firms restrict trading during high-impact news events (like NFP, CPI, or Fed rate decisions) to reduce volatility-related exploitation. The restriction window is typically 2 minutes before and after the event.

Many prop firms prohibit holding open positions over the weekend due to gap risk when markets reopen Monday. Firms that allow it often require reduced position sizes or have specific account types for swing traders.

Some prop firms restrict or discourage holding positions overnight due to swap fees and gap risk at market open. Others offer swap-free accounts to accommodate overnight traders. Always check the firm's overnight policy before placing longer-term trades.

Scalping — the practice of entering and exiting trades within seconds or a few minutes — is allowed at most modern prop firms. However, some restrict ultra-fast execution strategies that exploit latency or require minimum hold times per trade.

Martingale strategies — where position size doubles after each loss — are banned at most prop firms. The exponential risk increase directly threatens the drawdown limits and firm capital, making it incompatible with most risk frameworks.

Hedging within a single account (buying and selling the same pair simultaneously) is generally allowed. However, cross-account hedging — using multiple accounts to guarantee profit by holding opposite positions — is strictly prohibited at all firms.

True HFT — involving thousands of orders per second via co-located servers — is banned at virtually all retail prop firms. These firms use standard retail brokers and MetaTrader platforms that cannot support genuine HFT infrastructure.

Copy trading — automatically mirroring another trader's positions — is allowed at some prop firms but prohibited at others. The key concern is whether the trader demonstrates independent decision-making. Copying signals for your own strategy is generally fine; copying someone else's account is not.

Most prop firms allow EAs and automated trading systems, provided the strategy does not exploit platform or data feed vulnerabilities. Tick scalping EAs, latency arbitrage bots, and HFT EAs are banned. Legitimate strategy-based EAs are widely accepted.

The profit target is the minimum profit percentage a trader must reach to pass each phase of an evaluation. Phase 1 typically requires 8–10% profit, and Phase 2 requires 4–5%. Profit targets must be hit while respecting all other rules simultaneously.

Most prop firms require traders to be active for a minimum number of calendar or trading days before they can pass a phase. This prevents traders from getting lucky in a single session and ensures consistent performance is demonstrated.

The consistency rule limits how much of your total profit can come from a single trading day. Typically, no single day's profit should exceed 30–50% of your total profit. It's designed to prevent traders from passing challenges by "going big" on one high-risk trade day.

Traditional prop firm challenges have a set number of calendar days to achieve the profit target — usually 30 days for Phase 1 and 60 days for Phase 2. Some modern firms have removed time limits entirely, offering unlimited evaluation periods.

Some prop firms require traders to place at least one trade within the first few days of receiving a funded account, or the account may be considered inactive and cancelled. This ensures that purchased accounts are actually used.

When a trader breaches a rule or fails to hit the target within the time limit, the challenge is failed. Most firms offer a paid reset or a discounted retry. Some firms now offer free resets or partial refunds for rule-breach failures where the trader was close to passing.

The minimum number of active trading days required to complete a prop firm evaluation.

Latency arbitrage exploits tiny delays between a prop firm's data feed and real market prices, allowing traders to enter positions at artificially advantageous prices. It is universally banned because it does not reflect genuine trading skill and extracts money from the firm through a technical exploit.

Running identical trades across multiple accounts at the same firm — whether your own or coordinated with others — is prohibited. Firms allow traders to hold multiple accounts but require that each is traded independently, with different trade entries or sizes.

Some prop firms enforce a minimum trade duration — requiring positions to be held for at least 2–5 minutes before being closed. This rule targets traders exploiting latency or spread arbitrage on very fast timeframes.

Tick scalping involves opening and closing trades in fractions of a second, often exploiting requotes, slippage patterns, or demo account pricing discrepancies. It is banned because it exploits the prop firm's simulated environment rather than genuine market dynamics.

Swap-free (Islamic) accounts eliminate overnight interest charges, making them compliant with Islamic finance principles. Many prop firms offer this option, though some apply an administrative fee in place of swap charges for positions held overnight.

Many prop firms reduce leverage on funded accounts compared to the challenge phase, as real (or simulated live) capital is at risk. Challenge accounts often offer 1:100 leverage, while funded accounts may reduce this to 1:30–1:50, particularly on volatile instruments.

Funded traders can request withdrawals of their profit share on a set schedule — typically once per month after the first payout period (often 14–30 days). Payout ratios range from 80% to 95% in the trader's favour, with some firms offering 100% on the first withdrawal.

The profit split defines how much of the trader's generated profit they keep vs. what goes to the firm. Standard splits range from 80–90% to the trader. Some firms offer up to 95% after scaling, and a few offer 100% on the first payout as a marketing incentive.

A scaling plan allows successful traders to increase their funded account size over time by hitting consistent profit milestones. Typical scaling programs double or increase the account by 25–50% after each target is hit, with some firms offering accounts up to $4M+ through scaling.