Proprietary trading, commonly known as prop trading, has become one of the most attractive avenues for traders seeking to trade large capital without risking their own money. Firms like Pax Market Funds provide traders with funded accounts, allowing them to trade forex, commodities, indices, and other instruments. While these opportunities can be lucrative, every prop firm enforces strict rules to protect their capital and ensure traders operate responsibly.
Understanding these rules is crucial for any trader looking to succeed in the world of prop trading. This guide will break down the typical rules prop firms impose, why they exist, and how you can navigate them to maximize your success.
1. Profit Targets
One of the first rules prop firms set is the profit target.
A profit target is the amount of gain a trader must achieve to either pass an evaluation or withdraw profits from a funded account.
For example, Pax Market Funds may require traders to achieve 8–10% profits on their evaluation account before granting full funding.
Why it matters: Profit targets ensure that traders are capable of generating consistent returns rather than relying on luck. A structured profit target helps both the trader and the firm gauge skill and consistency.
Tip: Focus on disciplined, consistent trading rather than chasing high profits too quickly.
2. Maximum Drawdown Limits
Prop firms always include drawdown rules to protect their capital.
Daily Drawdown: Limits the amount a trader can lose in a single day, usually 1–2% of the account.
Overall Drawdown: Caps cumulative losses over the trading period, often 5–10% of the account balance.
Exceeding these limits typically results in account termination. For example, if you violate Pax Market Funds’ drawdown rules, you may lose your evaluation or funded account.
Pro Tip: Always calculate risk per trade carefully and avoid over-leveraging.
3. Trading Style and Instrument Restrictions
Many prop firms have rules around trading style and allowed instruments.
Some firms restrict scalping, news trading, or overnight positions.
Only certain instruments may be allowed — for example, forex majors, select commodities, or indices.
Pax Market Funds encourages traders to follow strategies that demonstrate discipline and risk management, aligning with their goal of capital preservation.
4. Maximum Position Sizes
Another standard rule is the maximum position size per trade.
Prop firms limit lot sizes to ensure no single trade can significantly damage the firm’s capital.
For instance, on a $100,000 funded account, the maximum allowed trade size may be 2 standard lots.
Adhering to position limits is critical. Over-leveraging is a common mistake that leads to disqualification.
5. Trading Hours
Prop firms often define specific trading hours during which traders are allowed to open positions.
Trading outside these windows may result in penalties.
Typically, trading is allowed during the most liquid market sessions to avoid excessive volatility risk.
Pax Market Funds emphasizes trading during normal market hours to ensure fair execution and account safety.
6. Risk Management Rules
Risk management is the cornerstone of any prop firm’s policies.
Never risk more than 1–2% of the account per trade.
Avoid emotional trading, revenge trades, or impulsive decisions.
Use stop-loss orders on all trades to limit potential losses.
Following these rules demonstrates professionalism and helps traders meet evaluation and funded account goals.
7. Evaluation or Challenge Phase
Before receiving a funded account, most prop firms require traders to pass an evaluation or challenge:
Phase 1: Hit a profit target while staying within drawdown limits.
Phase 2: Demonstrate consistency over several trading days or weeks.
Passing these stages proves that traders can manage real capital responsibly, just as Pax Market Funds requires.
8. Account Monitoring and Reporting
Prop firms continuously monitor trader performance:
They track profits, losses, drawdowns, and open positions.
Some firms require traders to submit trade logs or performance reports.
Active monitoring ensures traders adhere to the rules and allows the firm to identify and mentor high-potential traders.