Prop firm rules explained

Daily drawdown — the rule that fails most accounts

A daily drawdown limit caps what the account may lose within one trading day, typically at 4% or 5%. Two details decide how hard it actually is.

• ·Whether it measures balance or equity. Equity-based limits include open positions, so an unrealised loss can breach the limit without a single trade being closed.
• ·When the day resets. The reset uses the firm's server midnight, which is frequently neither your local midnight nor your broker's. A trade spanning the reset is exposed to both days.

Configure any automated system's own daily lockdown below the firm's limit rather than at it. The trade that reaches the threshold will slip, and equality leaves nothing to absorb it.

Maximum drawdown — static or trailing

A static maximum drawdown is a fixed floor: 10% on a $100,000 account means failure at $90,000 regardless of what happens in between. A trailing drawdown follows your equity high upward and never comes back down.

The trailing version is materially harder, and harder still when it trails on peak equity including open profit. A position that goes $3,000 into profit and returns to breakeven has raised your failure threshold by $3,000 without you realising a cent. This interacts badly with any strategy that gives back open profit, which includes most trend following.

Profit target and time limits

Targets of 8% to 10% are standard, sometimes split across two phases. The target is rarely the binding constraint — reaching it without breaching a drawdown limit along the way is the actual test, which is why aggression is counterproductive.

Most firms have removed hard time limits, which changes the calculation substantially. Without a deadline, a modest consistent return is sufficient, and the question becomes whether the drawdown limits are survivable over the months required rather than whether the target is reachable quickly.

Consistency rules and payout gates

A consistency rule caps how much of total profit may come from a single day, commonly 20% to 40%. It does not fail the account — it withholds or delays the payout, which is why it is so frequently missed until withdrawal time.

It penalises strategies with uneven return distributions. Breakout systems make much of their money on a small number of days by design, and a bot that occasionally has an outsized session can trip this without doing anything wrong.

Before you pay an evaluation fee

Check whether Expert Advisors are permitted at all, whether they are permitted during evaluation as well as after funding, whether news trading is restricted, and whether running the same strategy across several accounts you hold counts as copy trading. See can you use an EA on a prop firm account.

Then work the numbers before starting rather than after. The prop firm drawdown calculator converts a firm's limits into the risk per trade and consecutive-loss tolerance they actually imply.