Just as many forex traders blow personal accounts, many also wipe out their prop firm accounts. Actually, you probably will never hit zero on a prop firm account, because after you pass the drawdown limit, the firm will close the account itself.
Obviously, that is something you want to avoid. If you lose your prop firm account, you may have to go through the evaluation process all over again to get a new account. In some cases, you might have to go with a different prop firm altogether, requiring you to complete a different challenge process altogether.
Thankfully, there are steps you can take to avoid most possibilities of account closure. Below, we go over some simple best practices for trading with a forex prop firm. If you follow these practices, you probably will not have your account closed.
1. Pick a suitable prop firm to begin with.
Making sure you don’t lose your prop firm account starts with joining the right firm in the first place. Not every prop firm is a fit for every trader. Even if a firm is reputable and trustworthy, it may not cater to traders who use your strategies, or might have rules you find too constraining. So, ensure that you are picking a compatible prop firm. See our guide to how to choose a prop firm for more details.
2. Read the rules carefully, and post the ones you might forget.
Speaking of rules, one of the most common reasons why traders end up losing their prop firm accounts is because they break them, intentionally or otherwise.
Some rules may not be obvious without taking the time to look them up, or they could be easy to forget. Here are some examples:
- Some firms may require you to put a mandatory stop loss on every trade you make. You might trigger a hard breach even on a winning trade just by modifying a trade without a stop loss.
- There could be a cap on how much you are allowed to risk on a trade or on an asset.
- You may be forbidden from trading the news. If you trade within a certain window before or after a news event or report release, you may be deemed in violation of this rule.
- Sometimes the way that prop firms handle trailing max drawdown or calculating daily losses may be confusing, and cause limit violations when you do not expect them.
- There could be distribution rules for how you profit. For example, if one single trade accounts for more than a certain percentage of your profits, the firm may consider you to have failed a profit rule.
- Some firms may have automated systems that detect inconsistencies in how you trade, flagging those that seem particularly risky. Even if you are doing nothing wrong, this could get you into trouble.
- A lot of prop firms have rules against using progressive risk systems like Martingale (which is fine, as they have a good reason for it, but just be aware).
- You may not be allowed to trade certain assets, or exceed caps for those assets.
- Some prop firms do not let traders hold overnight or weekend positions.
- Group trading and/or copy trading could be restricted or banned at some firms.
You can see why it is essential to read the rules carefully, and post any you might forget where you can clearly see them each day. So many account closures are avoidable if you just take care.
3. Manage your risk conservatively and consistently.
If the prop firm sets a maximum risk cap, obviously, you need to stay under it so you are not guilty of rule violations.
But even if they do not, you should try to be conservative with how you manage your risk. There is no reason to risk more than around 2% on any given trade. The nice thing about working with a prop firm is that you have a large funded account to trade with. Even trading 2% should be able to bring in some nice profits.
You should also avoid arbitrarily changing your trade sizes. If you are confident about a trade, you should risk the amount you have decided on. If you feel less confident about a trade, you probably shouldn’t be taking it, rather than adjusting your amount.
4. Don’t panic trade.
One of the worst things you can do with a prop firm account is to panic. This might happen if you have had significant drawdown, and you are worried about hitting the limit. You might begin overtrading in an attempt to bring your profits back up in a hurry. But if you do this, you are more likely to lose money, and maybe pass the maximum loss threshold. That could result in your account getting closed.
5. Pause if needed.
Some firms will close your account for inactivity, but a lot will not. Most firms, however, will close your account for surpassing their loss limits.
So, in most cases, if you need to take a break to troubleshoot issues with your trading strategies, the right move is to do that, not try to keep trading.
6. Do not break rules!
We already have talked about this, but it bears repeating. Do not break the rules, deliberately or otherwise! It is just not worth it.
Following Best Practices Protects Your Prop Firm Account
Forex traders lose their prop firm accounts pretty often. But many account losses are entirely avoidable so long as you follow the rules and these best practices. Take care with your trading, and you may be able to stay with the same prop firm for a very long time.
