One of the most important things every trader must understand before joining a prop firm is trading rules. These rules are not meant to restrict traders—they exist to protect capital, encourage discipline, and ensure long-term success.
If you are trading with a professional firm like those operating under a PAX MARKET FUNDS–style model, following trading rules is the difference between staying funded and losing your account.
This blog explains what trading rules are, why they exist, the most common prop firm rules, and how to follow them successfully.
1. What Are Trading Rules in Prop Firms?
Trading rules are pre-defined risk and behavior guidelines set by prop firms that traders must follow while trading evaluation or funded accounts.
These rules define:
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How much you can lose
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How much you can risk per day
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What instruments you can trade
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When you can trade
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How profits are withdrawn
Prop firms use rules to ensure traders operate like professionals, not gamblers.
2. Why Prop Firms Have Trading Rules
Unlike retail trading, prop firms manage large pools of capital. Rules help firms:
✔ Protect company funds
✔ Control risk exposure
✔ Maintain consistent performance
✔ Filter disciplined traders
✔ Support long-term scaling
✔ Prevent emotional trading
PAX MARKET FUNDS–style firms design rules that are fair, transparent, and achievable.
3. Most Common Trading Rules in Prop Firms
Below are the key rules every prop trader must understand.
1. Daily Loss Limit
This rule limits how much you can lose in a single day.
Example:
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Daily loss limit: 5%
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If your account drops 5% in one day → account fails
Purpose:
✔ Prevent revenge trading
✔ Protect from emotional losses
✔ Encourage daily discipline
2. Maximum Loss (Max Drawdown)
This is the total amount you can lose overall.
Example:
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Max drawdown: 10%
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If equity drops below that level → account violation
This rule ensures traders don’t slowly destroy the account.
3. Profit Target (During Evaluation)
During challenge or evaluation phases, traders must reach a profit target such as:
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8%
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10%
Without breaking rules.
This tests:
✔ Strategy consistency
✔ Risk control
✔ Psychological stability
4. Minimum Trading Days
Some prop firms require a minimum number of trading days before passing or withdrawing profits.
Why?
✔ Prevents lucky trades
✔ Ensures real trading skill
PAX MARKET FUNDS–style models often keep this flexible and trader-friendly.
5. Allowed Trading Instruments
Firms define what you can trade:
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Forex majors
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Indices
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Gold & commodities
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Limited crypto
Restricted instruments are usually illiquid or highly volatile assets.
6. Leverage Rules
Prop firms provide controlled leverage:
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Forex: Higher leverage
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Indices & commodities: Moderate
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Crypto: Low
This protects traders from sudden account failures.
7. News Trading Rules
Some firms restrict trading during:
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NFP
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CPI
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FOMC
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Major economic releases
This protects traders from extreme volatility and slippage.
8. Holding Trades Overnight or Over Weekends
Rules may specify whether:
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Overnight trades are allowed
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Weekend positions are allowed
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Swap fees apply
These rules reduce gap risk.
9. Expert Advisors (EA) & Automation Rules
Some firms:
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Allow EAs
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Restrict certain strategies
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Ban copy trading or arbitrage
Always verify automation rules before using bots.