Typical Prop Firm Rules

October 20th, 2021

“We live and die by the rules,” said John Santos, founder of Zoom in Profit Algo System. In his recent webinar, Optimization of NinjaTrader Strategies for Prop Firm Trading, Santos described some typical prop firm rules – and the importance of following them.

A proprietary firm, or “prop firm” is an organization that allows pre-approved traders to use the firm’s capital to trade with, rather than their own. The firm and trader each take a share of any profit. This is also sometimes referred to as trading with a “funded account”. Each prop firm has their own set of rules that a trader must follow, but there are some common threads between most of them.

Firstly, the trader will be required to trade consistently in a simulated environment for a set amount of time before they are given access a funded account. The exact amount of time required varies from firm to firm, but this period of “paper trading” is required to test the trader’s ability and strategy.

Secondly, firms may implement a trailing drawdown or daily loss limit to further test the trader’s skills before allowing them to work with a funded account.

Additionally, prop firm rules are often implemented around what trading hours are permitted or in what kind of environment trading is allowed. Many firms will require traders to close their positions before the market closes, or not allow trading during breaking economic news.

Some firms may also have requirements around what kinds of instruments are permitted, maximum number of contracts allowed, etc.

Santos was emphatic about the consequences of breaking any prop firm rules. A trader who breaks the rules will find their account balance reset – and they will likely have to pay a fee. As with most of these details, the fee amount will vary from firm to firm.

Once a trader has proven themselves and is working with a funded account, there are some additional guidelines that are typical. The trader will have to pay a setup fee and/or monthly fees in order to maintain the account. Importantly, the trader will also likely need to reach a certain level of profit above a “threshold balance” before they are eligible for a payout.

However, there are benefits to the funded account phase as well. For example, with a funded account, the trader will be able to reach their goals at their own pace. They will likely not be required to prove their consistency over a set amount of time, as they would in the testing phase.

In this short clip, John Santos explores these rules in greater detail.

If you are interested in learning more about prop firm rules and the details of funded accounts, be sure to check out John Santos’s full-length webinar. And if you enjoyed this clip, be sure to also watch How to Pass Funded Trading Tests with Simon Massey of Trade Room Plus and Trading Futures Without Your Own Capital with John Hoagland of TopStep Trader!

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