Prop firm rules explained before you buy
Most funded trading challenges are failed because traders misunderstand the rules — not because they cannot trade. Read this before you pay for an evaluation.
Prop firm drawdown rules
The max drawdown rule sets the total loss your account can take before the challenge ends. It is the single most important rule difference between firms — not just the percentage, but how it is measured.
Fixed floor from initial balance
If you start at $100k with 10% max drawdown, the floor is always $90k. Early profits do not raise it. The maximum loss level never moves.
Floor adjusts at end of day
Floor moves up based on closing equity each day. Profits made today raise tomorrow's floor. Giving back profit the next day shrinks your cushion.
Floor adjusts in real time
Floor rises continuously as equity grows during the session. A large intraday gain you then give back can breach the floor even if you end the day flat.
- Holding large intraday gains and letting them reverse under trailing drawdown
- Not accounting for open unrealised P&L when calculating remaining room
- Buying a trailing drawdown challenge when their strategy frequently gives back intraday profits
- Is it static or trailing? If trailing, EOD or intraday?
- What is the floor based on — equity or balance?
- Does the drawdown limit drop below balance or equity?
Daily loss rules
The daily loss rule caps how much you can lose in a single calendar day. It is the most common reason challenges are failed — and it is frequently misunderstood because of how it is measured.
Equity-based measurement
The daily limit is measured from your highest intraday equity — not from your balance at market open. Open trades that move into profit and then reverse still count against your daily room. This is stricter than it appears.
Balance-based measurement
The daily limit resets from your balance at the start of the day, not from intraday peaks. Less common but easier to manage, as unrealised gains do not affect your remaining daily room.
- Holding overnight positions that gap against them at the next open
- Trading multiple positions simultaneously on high-volatility news days
- Not accounting for open P&L when their effective daily room is smaller than the stated percentage
- Is daily loss based on equity or balance?
- Does the daily limit reset at midnight UTC, server time, or market open?
- Do open trades count toward the daily limit?
- What is the stated percentage — 4%, 5%, or higher?
Profit target rules
Profit targets define the gain required to pass each evaluation phase. Most firms use a two-phase model with a higher Phase 1 target and a lower Phase 2 target. Minimum trading days compound the difficulty.
Common target structure
Phase 1 is typically 8–10%. Phase 2 is typically 4–5%. Both phases have the same drawdown and daily loss limits. Minimum trading days mean you cannot rush through a phase by hitting the target in a single trade.
Risk-reward pressure
A 10% profit target with a 5% daily loss and 10% max drawdown means you must return 100% of your max drawdown room to pass Phase 1. That ratio determines how much risk pressure the rules create. Run it through the calculator before buying.
- Hitting the profit target but failing minimum trading days
- Taking excess risk to hit the target quickly and breaching drawdown
- Misreading Phase 1 vs Phase 2 target differences
- What is the Phase 1 target and Phase 2 target?
- Is there a minimum trading days requirement?
- Does the target apply to balance or equity?
Payout rules
Understanding payout rules before buying a challenge is as important as understanding the drawdown rules. The evaluation fee may be refunded — but only if you follow the payout rules correctly.
Payout cycle
First payout typically requires 14–30 days of trading on a funded account. Subsequent payouts may follow a shorter cycle. Always confirm with the firm.
Consistency rule
Caps your largest single trading day as a percentage of total profit. If one day generated more than 30–40% of your total profit, the payout may be reduced or held. This catches traders who had one exceptional day.
Fee refund terms
Some firms refund the evaluation fee on your first successful payout. This only applies to the evaluation fee — not trading losses. Refund is not guaranteed and requires passing all payout rules.
- Generating disproportionate profit on a single day that triggers the consistency rule
- Not reading whether the fee refund applies to their specific challenge type
- Assuming a fee refund means the challenge is risk-free — it is not
- Is there a consistency rule? If so, what is the threshold?
- How long until the first payout after going funded?
- Does a fee refund apply? On which challenge type?
- Is there a scaling plan? What triggers it?
Trading restrictions
Many funded challenges restrict specific trading behaviours. Trades that violate these restrictions may be voided — even if they were profitable. Check these before buying, especially if you trade around news or hold positions overnight.
News trading ban
Some firms prohibit opening trades within a set window before and after high-impact news events (typically 2–5 minutes). Trades placed in that window may be reversed. Check whether your firm uses an economic calendar restriction.
Weekend holding ban
Some firms require all positions to be closed by a set time on Friday. Any position left open may be closed automatically or the challenge may be failed. This eliminates gap-risk strategies but limits swing traders.
EA and algorithm restrictions
Some firms prohibit expert advisors outright. Others allow them on specific platforms only. Latency arbitrage, tick scalping and high-frequency strategies are typically banned across most funded programmes.
Copy trading restrictions
Copy trading — where multiple accounts follow identical trade signals — is banned by most firms. It is treated as coordination to maximise payouts and can result in disqualification of all accounts involved.
- Trading through high-impact news events without checking if the firm bans it
- Holding trades into the weekend on a firm that requires flat positions at close
- Using copy signals that match other traders on the same firm
- Does the firm restrict news trading? What is the window?
- Are positions required to be flat before weekend?
- Are EAs allowed? On which platforms?
- Is copy trading explicitly banned or just monitored?
Platform and account rules
Not all firms offer all platforms. Your preferred platform must be available on the firm and the specific programme you are buying. Check before purchasing — this is not always documented clearly on the main page.
MetaTrader 5 (MT5)
The most common platform. Available on most funded challenges. FIFO trade execution rules apply on US-regulated broker infrastructure, which can affect hedging strategies.
cTrader
Available on fewer firms but allows hedging without FIFO restrictions. Some traders specifically need cTrader due to their strategy or EA compatibility.
MetaTrader 4 (MT4)
Less common on newer firms. Supports hedging. If your EA or strategy is MT4-only, confirm it is available on the specific programme before purchasing.
- Is your preferred platform available on this firm?
- Is it available on the specific programme, not just the firm?
- Are there account currency restrictions?
- Can you use your existing EA on this platform?
- Buying a challenge assuming cTrader is available — it often is not
- Using an MT4-only EA on an MT5 firm account
- Not verifying platform availability on the specific account size
Now compare challenges by rule risk
See drawdown type, daily loss limits, profit targets and checkout-observed pricing for each firm and programme — with source-status labels on every value.