Know Before You Trade
Trading Rules Comparison
Compare drawdowns, allowed strategies, and restrictions across 23 prop firms
Daily Drawdown
3-5% max/day
Max Drawdown
6-12% total
Time Limits
Min trading days
Profit Target
8-10% required
Rules by Firm
Understanding Prop Firm Trading Rules
Every proprietary trading firm enforces a strict set of trading rules designed to manage risk and protect capital. Whether you are attempting a challenge evaluation or already trading a funded account, understanding these rules is the single most important factor in your success. Violating even one hard rule can result in immediate account termination, forfeiting your challenge fee or pending payouts. The two most critical rules across virtually every prop firm are the daily drawdown limit and the maximum drawdown limit.
The daily drawdown limit caps your maximum loss for any given trading day, typically between 3% and 5% of your starting daily equity. If your account drops by this amount within a single session, all positions are automatically liquidated and you may be locked out of trading until the next day. The maximum (or total) drawdown is the overall loss threshold for your entire account, usually set between 6% and 12%. Exceeding this limit at any point fails your challenge or terminates your funded account immediately.
Static vs. Trailing Drawdown
One of the most misunderstood concepts in prop trading is the difference between static and trailing drawdown. A static drawdown is calculated from your initial balance and never changes. If your starting balance is $100,000 with a 10% max drawdown, the fail threshold stays fixed at $90,000 no matter how high your account grows. A trailing drawdown, however, moves upward with your highest recorded equity. If your equity peaks at $108,000, the trailing stop rises to $98,000 — locking in unrealized gains as new risk boundaries. This makes trailing drawdowns significantly more restrictive and demands a disciplined approach to locking in profits.
Many experienced traders specifically seek firms that offer static drawdowns on funded accounts, even if the challenge phase uses trailing drawdowns. Some firms advertise a "trailing until profit target" model where the drawdown trails during the challenge but converts to static once you are funded. Understanding these nuances before purchasing a challenge can save you both money and frustration.
Strategy Restrictions: What You Can and Cannot Do
Beyond drawdown rules, prop firms impose various strategy restrictions that can significantly impact your trading approach. Common restrictions include:
- News trading restrictions — Some firms prohibit opening or closing positions within 2-5 minutes of major economic releases such as NFP, FOMC, or CPI data.
- Expert Advisors (EAs) and bots — Many firms allow automated trading but require that the strategy be original and not shared across multiple accounts or traders.
- Copy trading — Most firms prohibit copying trades between prop accounts, though some allow copying from your personal broker account.
- Hedging — Opening opposing positions on the same instrument is allowed by some firms and prohibited by others.
- Scalping — While most firms allow scalping, some require a minimum trade duration (often 1-2 minutes) to prevent tick scalping or latency arbitrage.
- Weekend and overnight holding — Some firms require all positions to be closed before the Friday market close or before the end of each trading day.
Always verify strategy restrictions in the firm's terms of service before purchasing a challenge. The comparison table on this page provides a clear side-by-side view of which strategies are allowed by each firm, helping you quickly identify firms that match your trading style. If you use automated strategies or trade during news events, filtering by these specific rules can save you from an unexpected account termination.
Profit Targets and Minimum Trading Days
Most challenge evaluations require you to hit a profit target — typically 8% in Phase 1 and 5% in Phase 2 — within a set number of trading days. Minimum active trading day requirements (usually 3-10 days) ensure that traders demonstrate consistency rather than relying on a single lucky trade. Some newer firms have eliminated minimum day requirements, offering "instant funding" or rapid evaluation programs. While appealing, these programs often come with tighter drawdown limits or higher fees to compensate for the reduced evaluation period.
Understanding the interplay between profit targets, drawdown limits, and time constraints is essential for developing a viable trading plan. A firm with a generous 12% max drawdown but a 10% profit target in just 5 trading days creates a very different risk profile than a firm offering 10% max drawdown with an 8% target over 30 days. Use our comparison tools to evaluate these parameters together rather than in isolation.
Frequently Asked Questions About Trading Rules
What is a daily drawdown limit in prop trading?
A daily drawdown limit is the maximum amount your account can lose in a single trading day, usually expressed as a percentage of your starting daily balance or equity. Most prop firms set this between 3% and 5%. Once you hit this limit, all open positions are automatically closed and you may not trade again until the next day. Some firms calculate the daily drawdown from your starting balance at midnight (server time), while others use your highest equity point during the day. Understanding which method your firm uses is critical because the equity-based calculation is more restrictive — a winning trade that reverses can trigger the daily limit even if you end the day breakeven.
What is the difference between trailing and static drawdown?
Static drawdown is calculated from your initial starting balance and never moves. For example, if you start with $100,000 and the max drawdown is 10%, your account fails if equity drops below $90,000 — regardless of how high your balance grows. Trailing drawdown, on the other hand, follows your highest equity point upward (but never back down). If your equity reaches $105,000, the trailing stop moves to $95,000 (still 10% below the new high). This means trailing drawdown is significantly more restrictive because profitable trades raise the floor. Some firms use a trailing drawdown during the challenge phase but switch to a static drawdown on funded accounts, which is a major advantage to look for when comparing firms.
Can I trade during high-impact news events?
It depends entirely on the firm. Some prop firms allow unrestricted news trading at all times, while others impose restrictions around high-impact events such as NFP (Non-Farm Payrolls), FOMC interest rate decisions, CPI releases, and central bank speeches. Typical restrictions include no opening new positions within 2-5 minutes before and after a major news release. Firms that restrict news trading do so because extreme volatility can cause slippage and abnormal price action that makes risk management unpredictable. If news trading is a core part of your strategy, always verify the firm explicitly allows it before purchasing a challenge. Our comparison table above shows the news trading policy for each firm.
Are Expert Advisors (EAs) and trading bots allowed?
Many prop firms allow the use of Expert Advisors (EAs), automated trading bots, and algorithmic strategies — but not all. Firms that do allow EAs typically require that the strategy be your own and not a widely shared or purchased bot used by hundreds of other traders. The concern is that identical trade patterns from multiple accounts can be flagged as "group trading" or account management, which violates most firms' terms. Some firms also prohibit specific types of automation such as high-frequency trading (HFT), latency arbitrage, or tick scalping bots. If you rely on automated trading, check whether the firm requires a unique strategy, whether they restrict trade execution speed, and whether they have specific rules about lot sizes or position frequency.
What is copy trading and is it allowed by prop firms?
Copy trading means replicating trades from one account to another — either from your personal account, a signal provider, or another trader. Most prop firms strictly prohibit copy trading between challenge or funded accounts, even if both accounts are yours. The reason is risk management: if one trader or signal controls multiple funded accounts, a single bad trade could cause simultaneous losses across many accounts. Some firms do allow you to copy trades from your personal (non-prop) broker account to your prop firm account, but you should always verify this in the terms and conditions. Firms that allow copy trading usually require proof that you are the original signal provider, not a subscriber to someone else's strategy.
What happens if I violate a prop firm trading rule?
Violating a hard rule — such as exceeding the daily drawdown limit or maximum drawdown — typically results in immediate account termination. Your challenge or funded account is closed, and you forfeit the fee paid (for challenges) or future payouts (for funded accounts). Most firms do not offer second chances for hard rule violations. Soft rule violations, such as trading during restricted news windows or holding positions slightly past a deadline, are handled differently by each firm. Some firms issue warnings, others impose temporary trading restrictions, and a few will fail the account outright. It is essential to understand which rules are "hard breaches" (instant fail) versus "soft breaches" (warning or penalty) before you start trading. Always read the full terms of service — not just the marketing page.
Can I hold positions overnight or over the weekend?
Overnight and weekend holding policies vary widely between prop firms. Many firms allow overnight holds on forex, indices, and commodities without restrictions. However, some firms prohibit holding positions over the weekend (Friday close to Monday open) due to gap risk — prices can move significantly between Friday's close and Monday's open, potentially causing large losses that exceed drawdown limits. Cryptocurrency trading accounts are often exempt from weekend restrictions since crypto markets trade 24/7. Firms that restrict weekend holding typically auto-close all positions before the Friday market close. If swing trading or position trading is your style, make sure your chosen firm explicitly allows multi-day and weekend holds. Our table above indicates weekend holding policies for each firm.
What are the minimum trading day requirements?
Most prop firm challenges require a minimum number of active trading days before you can pass to the next phase or request a payout. Common minimums range from 3 to 10 trading days. An "active trading day" typically means you opened and closed at least one position during that day. This rule exists to prevent traders from getting lucky on a single large trade and passing the challenge without demonstrating consistent ability. Some firms count a day as active only if you had a minimum trade duration (e.g., positions held for at least 2 minutes). A few firms have removed minimum day requirements entirely, allowing traders to pass in as few as 1 day — these are usually marketed as "instant funding" or "rapid challenge" programs. Keep in mind that fewer minimum days often comes with stricter drawdown rules or higher fees.