Before you start any prop firm challenge, you need to understand exactly what rules you're agreeing to. Breaking a single rule — even accidentally — can end your challenge instantly. This guide explains every common rule in detail.
Drawdown Rules (The Most Important)
Drawdown rules are where most traders fail. Understanding the differences between drawdown types is crucial.
Daily Drawdown (Daily Loss Limit)
How it's calculated: Most firms calculate daily drawdown from your starting balance of the day OR your equity high of the day — whichever is higher. This means if you're up $2,000 at midday, your daily drawdown limit is now measured from that high point.
Example: $100K account with 5% daily limit. You start the day, make $3,000, then lose $8,000. Your daily loss is $5,000 (from the high), which equals 5% — you've hit the limit.
Maximum Drawdown (Total Loss Limit)
Types of Maximum Drawdown
| Type | How It Works | Difficulty |
|---|---|---|
| Static | Always measured from starting balance. $100K with 10% = you're safe until equity drops below $90K. | Easiest |
| Trailing (Real-time) | Trails your equity high in real-time. If you peak at $105K, your limit becomes $94.5K. | Hardest |
| Trailing (EOD) | Only trails based on end-of-day balance. Intraday fluctuations don't affect it. | Medium |
With trailing drawdown, making profit actually reduces your safety buffer. If you make 5% quickly, your max drawdown effectively becomes 5% instead of 10%. Many traders hit their limit right after a winning streak.
Profit Targets
The minimum profit you need to pass each phase of the evaluation.
Common Profit Targets
- Phase 1: 8-10% (most common)
- Phase 2: 5% (most common)
- 1-Step Challenges: 8-10% (single phase)
- Instant Funding: No profit target to start
Don't stop trading immediately after hitting your profit target if you have minimum trading day requirements left. Some traders secure their target, then risk only a small portion to add buffer while meeting other requirements.
Trading Day Requirements
Minimum Trading Days
Many firms require you to trade a minimum number of days (typically 3-10) before passing. A "trading day" usually means placing at least one trade that day.
No Time Limit vs. Time Limits
- No time limit: Take as long as you need to pass (increasingly common)
- 30-day limit: Must complete the challenge within 30 calendar days
- Unlimited time + inactivity clause: No deadline, but account closes after 30 days of no trading
Consistency Rules
Some firms require your profits to be distributed somewhat evenly across trading days.
Common Consistency Rules
- No single day > 30-40% of total profit: Prevents "lucky" one-day passes
- Minimum profitable days: Some percentage of days must be green
- Lot size consistency: Can't suddenly trade 10x your normal size
If you have a big winning day early, continue trading smaller to add more winning days. This dilutes the percentage of profit from any single day.
Trading Restrictions
News Trading
Many firms restrict trading around high-impact news events:
- No restriction: Trade anytime (most trader-friendly)
- 2-minute restriction: No new trades 2 min before/after news
- 5-15 minute restriction: Common conservative restriction
- Must close positions before news: Most restrictive
Weekend Holding
- Allowed: Keep positions open over the weekend
- Prohibited: All positions must be closed by Friday market close
Overnight Holding
- Allowed: Hold positions overnight
- Prohibited: Must close all positions by end of trading session
Lot Size & Position Limits
Maximum Lot Size
Most firms limit the maximum position size you can take. Common limits:
- $100K account: 10-20 lots max
- $200K account: 20-40 lots max
- Some firms: No explicit limit (use common sense)
Maximum Open Positions
Some firms limit how many trades you can have open simultaneously (e.g., max 3-5 positions).
Prohibited Trading Strategies
Almost Always Prohibited
- Copy trading between accounts: Using the same signals on multiple firm accounts
- Hedging across accounts: Going long on one account and short on another
- Account management services: Having someone else trade your account
- Arbitrage/latency exploitation: Exploiting price feed delays
Sometimes Prohibited
- Martingale: Some firms ban doubling down on losers
- Grid trading: Some firms ban systematic grid strategies
- High-frequency trading: Excessive trades per minute may be flagged
Usually Allowed
- Expert Advisors (EAs): Most firms allow them (verify first)
- Scalping: Most firms allow, but check minimum hold times
- Hedging within same account: Usually allowed
Payout Rules (Funded Stage)
Profit Split
The percentage of profits you keep vs. what the firm takes:
- 100%: Keep everything (rare, usually with higher fees)
- 90%: Very competitive
- 80%: Industry standard
- 70-75%: Below average
Payout Frequency
- Bi-weekly: Every 2 weeks
- Monthly: Once per month
- On-demand: Request withdrawal anytime
First Payout Timing
Many firms require you to wait before your first withdrawal:
- No waiting period: Request anytime after profit
- 14-day wait: Common first payout delay
- 30-day wait: More conservative firms
Scaling Plans
How firms increase your account size based on performance:
Common Scaling Structures
- Make 10% profit + 4 months consistent = 25% account increase
- Repeat cycle to grow account over time
- Some firms scale to $2M+ for top performers
Quick Reference: Rule Comparison
| Rule | Trader-Friendly | Restrictive |
|---|---|---|
| Drawdown | Static 10-12% | Trailing 6-8% |
| Daily Loss | 5%+ | 3-4% |
| Profit Target | 6-8% | 10%+ |
| Time Limit | Unlimited | 30 days |
| Min Days | 0-3 days | 10+ days |
| News Trading | Allowed | Restricted |
| Weekend Hold | Allowed | Prohibited |