Prop Firm Trading Rules: What Every New Trader Must Know

Many talented traders fail not because of their strategy, but because they break rules they didn’t fully understand.

Proprietary trading firms are companies that allow traders to manage larger sums of capital in exchange for a share of the profits. So instead of trading with their own money, traders get access to firm capital. This model has opened the doors for thousands of aspiring traders around the world, but it comes with a catch: rules.

Prop firm rules are not just guidelines. They actually determine whether you succeed or get disqualified. Whether it’s daily drawdown limits, consistency requirements, or prohibited trading styles, each rule exists to protect the firm’s capital. You have to understand these rules, if you want to master your trading skills.

In this article, we’ll break down the most critical prop firm rules every new trader must know. Whether you’re just exploring the world of funded accounts or already in a challenge, this guide will help you avoid some mistakes and keep your trading journey on track. 

What Are Prop Firms?

Prop firms (proprietary trading firms) are companies that give traders their own money. Instead of risking your personal savings, you get to trade with thousands of dollars provided by the firm. In return for giving you their money, they will take a cut of your profits. Still the majority (often 70% to 90%) goes to you. Sounds fair.

Before you get access to that capital, there’s usually a catch: the challenge or evaluation phase. Think of it like a test drive-except you’re proving you can trade responsibly under real market conditions. Why is that necessary? Well, you don’t get your driving license before you prove you can drive. Same goes here. You need to meet profit targets, and follow strict risk rules. Of course, you need to do all that within a set time.

Types of Prop Firm Evaluation Processes

Prop firms use various different evaluation models before they give access to a funded account. 

Some of the most common models are: 

1. Rapid Challenges: They are fast, high-intensity evaluations (usually 7-10 days) for traders who can prove profitability quickly.
2. One-Step Evaluation: A single-phase test for experienced traders that can meet the rules.
3. Two-Step Evaluation:  It’s the most common, allowing traders to prove consistency over a longer period of time.
4. Three-Step Evaluation: It’s designed for traders who want to show that they can manage risk long-term.
5. Instant Funding: For traders with a verified track record. They can bypass evaluations.

Why Prop Firm Rules Matter

Prop firms might seem strict, especially if we compare them to regular retail trading accounts. But since they are giving you their assets, it seems natural. Go over a daily drawdown or violate a consistency requirement, and you’re out-even if your overall strategy was solid.

Many traders fail not because they’re bad at trading, but because they overlook a single guideline.

For example:

• If a firm says max daily drawdown is $500, it means you cannot lose more than $500 in one day.

Read the rules carefully, and you might be one step closer to becoming a funded trader.

Most Common Prop Firm Trading Rules

Getting funded by a prop firm sounds exciting. Prop firm trading rules are designed to weed out reckless traders and reward those who trade with discipline and control. Below are the most common rules you’ll find across leading prop firms. Understanding each one can be the difference between passing a challenge or losing your shot at funding.

Maximum Drawdown Limits

Drawdown is one of the most important prop firm rules. It means how much you are allowed to lose before they shut down your account.

There are two types:

• Daily Drawdown: It is the maximum amount you are allowed to lose in one trading day.

 Example: If your daily drawdown limit is $500, and you lose $501-even from one open trade-you fail the challenge.

• Overall Drawdown: It’s the total amount you are allowed to lose over time. For a $10,000 account, the limit might be $1,000 (10%).

Firms use these to protect their capital. They want to make sure you’re not taking wild risks. 

Checklist:

• Always be aware of your daily and total drawdown limits, to avoid getting shut down.
• Use alerts or equity stop-outs to avoid breaching rules.

Profit Targets

To pass a prop firm challenge, you’ll usually need to hit a specific profit target-often between 5% and 10% within 30 days.

That might sound doable, but the stress and the pressure of failing might be high.  It’s tempting to “go big” to reach the target quickly, but make sure it doesn’t backfire.

Smart traders always focus on consistency. Some firms don’t look at just the final number.For example if you hit 10% in one day and don’t trade again, that raises red flags.

Tips:

• Try to break your profit target into daily or weekly goals.
• Stick to your strategy every day instead of trying to get big wins.
• Remember: it’s a test of risk control, not gambling.

Trading Days / Minimum Activity

Most prop firms require a minimum number of trading days, typically 5–10 days, even if you hit your profit target early.

This rule ensures you’re not just lucky-it proves you can show up and perform consistently. They need a trader who will keep bringing them profit.

Forbidden Trading Strategies

Majority of prop firm rules include a list of banned strategies. That’s to prevent traders from exploiting loopholes. Some of the commonly banned approaches:

• News trading (e.g., NFP spikes)
• Copy trading or trade mirroring
• Latency arbitrage or scalping based on execution speed

These strategies can harm the firm’s internal risk model or technology. Even if they work, they’re considered unfair or high risk.

Checklist:

• Avoid using external signal services or copying trades.
• Stick to manual or algorithmic strategies that are allowed.

Usage of Expert Advisors (Bots)

Are you allowed to use a bot? You need to check this, because every firm treats this differently.

Some firms allow approved Expert Advisors (EAs) if they follow the same risk parameters as manual trading. Other firms will ban all automated trading outright.

Tips:

• Always ask support before using a bot.
• Use EAs only if you fully understand their logic.

Weekend & Overnight Holding

Many prop trading rules restrict holding trades over the weekend or after market close, especially during the challenge phase. Why? Because gaps in the market can create unpredictable losses. Prop firms don’t want to wake up Monday and find their capital wiped from a price gap.

Example: You’re long on gold Friday night. Over the weekend, major geopolitical news breaks and the market opens $800 lower. That loss could bust your account-and the firm’s risk model.

Checklist:

• Close trades before Friday market close (check firm’s deadline).
• Know whether your funded account rules differ from the challenge.

Other Typical Restrictions

Besides the major rules, many firms also have smaller but still critical restrictions:

• No hedging (opening long and short on the same asset)
• No excessive scalping (trades under a few seconds/minutes)
• No trade copying from other funded accounts

These prop firm rules help prevent exploitation or risky behavior that could damage the firm’s financial model.

If you are in doubt, trade as if you’re trading your own $100K. That will make you think twice before you do something.

Most new traders who enter prop firm challenges don’t fail because their strategy is bad.It’s because they don’t read the rules. Every firm has its own version of prop firm trading rules, and missing just one detail-like when the trading day resets or how equity drawdown is calculated-can instantly end your challenge.

Then there’s overtrading-trying to hit that 10% profit target as fast as possible, opening huge positions, and blowing the account in a day. It’s also easy to ignore rules buried in the fine print, like restrictions on trading news events or holding trades overnight.

Always read everything twice, ask questions if needed, and don’t rush the process.

How to Stay Compliant and Pass the Challenge

Passing a prop firm challenge isn’t about finding the perfect setup-it’s about proving you can trade with discipline while following all the prop firm trading rules. Whether you’re going for a $10,000 account or a $200,000 one, the rules are the real test-not the market.

Top prop funding firms all have strict guidelines to protect their capital.  To pass, you’ll need more than just a good strategy-you need structure. The first step is to understand the challenges. You need to learn the basics of trading before you become a trader. 

Many traders try to hit a 10% profit target in two days-and fail. 

Passing a challenge isn’t about luck. It’s about consistency, risk control, and knowing the rulebook better than your trades.

Conclusion

If you understand and follow prop firm trading rules you might become a successful trader. These rules-whether it’s max drawdown, trading days, or risk limits-aren’t just fine print. They’re the key to your success.

Before starting with any top firm, like Funding Rock, take time to study their rules carefully. If something’s unclear, ask-don’t assume.

Be disciplined, and give yourself the best shot at becoming a millionaire.