Prop trading firms such as PAX MARKET FUNDS offer traders the opportunity to trade with significant capital and earn a percentage of the profits without risking personal money. However, to maintain fairness, risk control, and company sustainability, prop firms enforce strict trading rules. Breaking these rules can lead to serious consequences—ranging from temporary restrictions to full account termination.
In this detailed guide, we will explore what happens if you break a rule in a prop firm, why rules exist, how to avoid violations, and what steps to take if you mistakenly breach one.
Why Prop Firms Have Strict Rules
Prop firms manage real or simulated large capital accounts. To protect their funds and maintain risk structure, they implement specific rules related to:
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Risk management
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Drawdown control
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Consistency in trading
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Leverage usage
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News and volatility restrictions
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Daily trading limits
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Trading behaviour and ethics
Without rules, accounts could blow up quickly, creating losses for the firm and traders. This is why obeying guidelines is crucial to become a successful funded trader.
What Happens If You Break a Prop Firm Rule?
Every prop firm handles rule violations differently, but below are the most common consequences—similar to what platforms like PAX MARKET FUNDS follow:
1. Immediate Account Termination
If a trader violates a major rule such as:
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Exceeding daily or overall drawdown
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Using unauthorized copy trading or banned EAs
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Executing trades outside allowed conditions
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Using risk-free hedging or arbitrage exploits
The funded or evaluation account may be closed instantly, and the trader fails the challenge or loses funding.
2. Loss of Profit Eligibility
Even if the violation is small, the firm can:
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Cancel payout for the current cycle
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Revoke profit sharing rights
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Reset account profit to zero
This is usually done when a trader performs suspicious or unfair trading actions.
3. Warning or Suspension
For minor or first-time violations, firms may:
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Send a warning email
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Pause trading for a short duration
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Ask for clarification or proof of strategy
Example: Trading during restricted high-impact news without being aware of timing.
4. Reset or Re-Evaluation Fee
Some prop firms allow traders to restart by:
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Paying a reset fee
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Restarting the evaluation challenge
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Continuing from Phase 1 or Phase 2
This gives traders another chance rather than losing everything.
Common Rule Violations in Prop Trading
| Rule Broken | Possible Result |
|---|---|
| Daily loss limit exceeded | Instant failure / account termination |
| Max drawdown rule broken | Challenge or funded account ends |
| Unauthorized EA / Copy trading | Account closure |
| Trading during restricted news | Profit cancellation / warning |
| Using multiple accounts to hedge | Lifetime ban |
| Sharing login credentials | Account termination |
| No stop-loss usage rule (if required) | Reset or suspension |
| Holding trades over weekends (if disallowed) | Violation / removal |
What Should You Do If You Break a Rule Accidentally?
If a rule is broken unintentionally:
✅ Contact Support Immediately
Explain what happened and provide transparency.
✅ Request a review
Many firms check trading history manually for clarity.
✅ Learn from the mistake
Write down all rules and trading restrictions.
Stay professional and polite
Support teams appreciate respectful communication.
How to Avoid Rule Violations
| Best Practice | Benefits |
|---|---|
| Read the rulebook carefully | Most traders fail due to misunderstanding |
| Track drawdown and risk per trade | Prevent accidental over-leveraging |
| Set alerts on news releases | Avoid restricted trading times |
| Use a consistent trading plan | Builds discipline |
| Use trade journals and calculators | Improves accuracy and planning |