Glossary
What Rules Do Prop Firms Apply to Trading
A company that lets you trade its capital after an evaluation and keeps a share of the profit. What a breach does depends on the limit and the firm: breaking the max loss closes the account, while the daily limit fails the evaluation at some firms and only halts the day at others.
How it works
Prop firm rules are a set of hard constraints a trader must follow on an evaluation account to pass and get funded: a daily loss limit, an overall drawdown limit, a profit target, and often a minimum number of trading days. The exact percentages and calculation mechanics differ between firms like FTMO, Topstep, Apex, and others.
Breaching the overall drawdown limit fails the challenge at nearly every prop firm, regardless of how profitable the account was up to that point. The daily limit isn't universal: at most CFD-based firms, breaching it also fails the account, but Topstep, for example, handles it differently — the daily limit simply halts trading for the rest of the session rather than ending the evaluation on its own.
The profit target and minimum trading days exist to filter out both a single lucky big-win day and overly passive trading. Because of this combination of constraints, passing an evaluation requires not just positive expectancy but risk management tight enough to avoid tripping any limit ahead of schedule.
Example
A firm's rules set overall drawdown at 10% of a $100,000 starting balance, meaning $10,000. If the account balance drops to $89,500 from a $100,000 peak, that's a 10.5% drawdown — over the limit, and the challenge fails regardless of current trade profitability.
Common mistake
A common mistake is focusing only on the daily limit and losing track of overall drawdown, which builds up more slowly but fails the account at most firms just as strictly as a single daily-limit breach.
Read next
Related terms
Frequently asked questions
- Does any daily limit breach reset the account?
- Not at every firm: at most CFD-based firms, yes, but at Topstep the daily limit only halts trading for the rest of the session without automatically failing the evaluation.
- Which matters more to watch — the daily limit or overall drawdown?
- Both have to be respected; overall drawdown needs attention across the entire evaluation, not just on individual hard days.
Track the firm's limits on your real trades
Pick the firm and program for an account in the Trading OS journal — it computes your room to the daily limit, max loss and target from closed trades.
No sign-up — the journal runs in your browser; an account is only needed for sync.