When you are granted a funded account by a prop firm, you will probably be eager to dive in and start trading. Before you do though, you should take time to review the rules and restrictions thoroughly. Hopefully, you did that before taking the challenge. But you should do it again before you start trading live.
If you break the rules, the prop firm may deactivate your account, sometimes permanently. So, it is very important to stay in their good graces. Here are some common rules and restrictions at prop firms.
1. Profit targets
Prop firms may want you to meet certain profit targets. This is a requirement during the evaluation phase, and less common once you get a funded account.
With funded accounts, prop firms are most likely to set profit targets for scaling up your account, or for maintaining a particular funding amount. Some may deactivate your account or disable withdrawals if you fail to hit profit targets, but many do not do this.
2. Drawdown limits
Drawdown limits are common once you are funded. These may include daily, weekly, and monthly loss limits, as well as caps per trade. You might be required to set stop losses on all your trades. There could also be an overall drawdown limit for the account as a whole.
If you breach a drawdown limit, the prop firm might restrict your account, temporarily suspend you, or close your account.
3. Position sizing
As just mentioned, there could be caps on your trade sizes. You can expect these to be pretty conservative, as it is not responsible to risk more than around 2% per trade. Strategies that use systems like Martingale may be outright banned, whether or not there are strict cap sizes on trades.
4. Overnight trading
Some prop firms have a ban on holding positions overnight. In other words, they permit only intraday trading. If you want to do swing trading or position trading, you will have to join a different prop firm that lets you hold overnight positions.
5. News trading
Another common restriction at many prop firms is a rule against trading within a certain window of a news event or report release. If you trade too close to the event, whether before or after it, you will get in trouble for breaking the rule.
Watch out for this even if you are not a news trader. You could break this rule easily by accident. For example, maybe you trade using technical analysis alone, and tend to completely ignore news releases. If you place an entry too close to one with no idea it is even happening, you may end up breaking your prop firm’s rules.
So, everyone who trades at a prop firm should stay aware of the news schedule, no matter what type of trading method they are using. The only exception is if you are at a prop firm that does not ban news trading.
6. Scalping
Scalping refers to strategies where you trade on a small timeframe like 1 minute or 5 minute charts. You jump in and out of trades in minutes or seconds, profiting off of mainly small moves. Scalpers generally place many trades throughout the day.
Some prop firms allow scalping. But others do not. Before you start making very short-term trades, look up your prop firm’s rules about scalping. If there is a policy against it, make sure to understand the details so you do not accidentally violate any rules.
7. Automation
Whether or not you can do automated trading using forex robots depends on what prop firm you are with. The rules might include a complete ban on automated trading, or they may allow auto-trading under certain conditions.
Follow the rules on auto-trading exactly as they are written. If you are not allowed to auto-trade, either trade the system manually, or go to a different prop firm that lets you auto-trade.
8. Copy trading or other collusion
It is common for prop firms to ban traders from copying each other. That includes copying traders at the firm and elsewhere. If they figure out you are doing it and it is against the rules, they could shut down your account.
The same is likely to happen if they detect any other sort of collusion between you and other traders. If that is against the rules, you will have to trade on your own.
9. Consistency
Prop firms may sometimes punish you if you have days where your lot sizes and/or your profits are vastly different from what they usually are. It may sound weird, but it is pretty common.
A helpful way to look at this and why it is the case is to consider an account that usually pulls in scant profits, or even logs a lot of losses, but then pulls in a huge amount of money on a single trade.
Basically, this is such a high volatility scenario that it is hard for the prop firm to trust that the trader really knows what they are doing. They might be quite a poor trader in general, but simply have gotten lucky one time.
So if a single trade or a small percentage of trades accounts for most of your profits, that would be a situation where a consistency rule might be used to shut down your account. Look up the consistency rules for your prop firm (if any) to understand what their exact expectations are.
Follow the Rules to Protect Your Prop Firm Account
If you want to keep your prop firm account for a long time to come, you need to follow the firm’s rules to the letter. Most account closures are either due to exceeding loss limits or breaking the rules. If you are not sure you will remember certain rules, print out a list and tape it to your wall. Glance at it whenever you need a refresher.
