Proprietary trading firm hidden rules

Proprietary trading firm hidden rules

Written by

Justin Cox

Written on

Dec, 2023

Updated on

Jan, 2024

Table of content

Prop firms offer trading rules on their website, usually under each funded account option. However, some rules may not be displayed on the accounts page and require traders to dig deeper to find them. These rules also known as hidden rules can make a difference in a trader’s life when overlooked. Hidden rules are often listed inside the terms and conditions or FAQ sections of the prop firm’s website.

It is essential to carefully read and understand all rules before applying for a funding challenge. In this blog post, we are going to explain hidden rules and provide examples.

What are Proprietary Trading Firm Hidden Rules?

Top prop firms typically offer full descriptions of rules on their website. However, some firms do not offer full disclosure of all trading rules and limits. These rules are called hidden rules, and they have the potential to ruin trading performance and make traders frustrated. Hidden rules frequently are overlooked during registration and can expose traders to considerable risks.

Ethical considerations of prop firms with hidden rules

Rules of prop firm trading are typically explicitly presented on the prop firms’ website, and ensure traders know all trading conditions before starting evaluation. While hidden rules are legal, and it is impossible to take legal action against the firm employing such tactics, they surely lack ethical ground. Ethical prop firms describe and list all rules on their dedicated sections on the website and ensure traders can clearly understand all the conditions before starting the challenge. But not all prop firms are ethical, and some entry to take away traders’ audition fees with complicated and even obscure rules that are difficult to spot and follow. Some firms change rules very often without prior notice, which is unethical for already registered traders.

Hidden rules you should know as a prop trader

Detecting hidden rules and comparing them with your trading strategy is key to ensuring you can trade with peace of mind. Knowing the list of common hidden rules is one approach to reducing stress and confusion. Hidden rules are divided into soft and hard breach rules.

Soft breach rules and hard breach rules

Hard breach rules are typically daily and maximum loss limits result in funded account termination. If a trader breaks any of the hard breach rules, their account is blocked, and they lose the paid fee for the account. It is crucial not to break any of the hard trading rules to avoid losing the account and fees. Soft breach rules, on the other hand, end in a closure of position or account freeze. Account freeze is more disadvantageous as traders will need to contact the firm and ask them to unfreeze the account or pay a small fee. Usually, firms will close open positions that were placed by breaking the soft breach rules, which is less damaging for traders.

Soft and hard rules may be different for different prop firms, and make hidden rules especially dangerous. Forex prop firm hidden rules are often the main cause of traders losing funded accounts.

Examples of hidden rules

To make traders’ lives easier, we will now list the main hidden rules that you need to know. And if there is no information about any of these rules on the website, traders can just contact the support of the prop firm to understand if their strategies can withstand these rules.

  • Stop loss rule – Some firms require traders to place a stop loss for each trade at a certain minimum range. If the trader breaks this rule, it may end up in the closure of trading positions or even a funded account.
  • Maximum risk per position rule – This rule prohibits risking more than a certain percentage for each trading position. Breaking this rule causes similar effects as the mandatory stop loss rule.
  • Consistency rule – Generally sets some trading standards like the trading style and lot size consistency, meaning you can not use different lot sizes and methods for trading. This rule can be especially annoying if the trader employs more than one strategy to adapt to trends and range markets.
  • Maximum number of open positions – This rule ensures traders can not open more than a certain number of positions at the same time. Almost every prop firm has some kind of maximum open position limits, and it is necessary to ask for support for an exact number of positions, especially if a trader places multiple orders.
  • Minimum open trade time – some firms prohibit traders from scalping by introducing the minimum amount of time for every open position. This rule can be negative for performance, as sometimes you need to close a losing position quickly to prevent further losses.
  • Trading style restrictions – some firms prohibit using trade copiers, hedging, EAs, grid systems, and martingale systems. Ensure to check with the support in case you use any of these methods if they are not mentioned in the rules.

Detecting hidden rules – What to ask the support

The most convenient and quick way to get information about all hidden rules is to contact the prop firm’s support and ask questions. Ask support about the maximum allowed lot size, stop loss rules, EA rules, and hard and soft rules. Ask support about consistency rules. Since different firms may have different formulas for calculating consistency, it is always advisable to write down exact formulas and follow them. The picture above lists most of the hidden rules that many firms love to hide and use against traders.

Detecting hidden rules using the trading strategy

The best way to ensure you get all the needed information is to consider your trading strategy and write down all the rules. Compare your rules with the prop firm’s allowed risk limits and trading conditions. Ensure you ask the support about maximum lot sizes and mandatory stop loss rule. As an example, we asked Funded Trading Plus support whether they have a consistency rule and what is the number of open positions. The firm lists all the rules in the accounts section and has no hidden rules such as consistency or mandatory stop loss. There are very few rules and all of them are clearly given on the website.

Impact of hidden rules of prop trading

Rules that proprietary trading firms prohibit typically are designed to enable prop firms to terminate traders’ accounts and get the funded account fee. This unethical practice is characteristic of scams and frauds, but sometimes legit companies, too, may have some rules not explicitly mentioned on the website.

Top 5 prop firms without hidden rules

Firm Overall Score Min instant funding Max instant funding Min instant funding fee Profit share Daily loss limit Max loss limit
Funded Trading Plus 4.05 5,000 USD 250,000 USD 229 USD 70-80% 3-4% 5-8%
FTMO 4.03 10,000 USD 200,000 USD 164 USD 90% 5% 10%
Lark Funding 3.89 5,000 USD 1,000,000 USD 50 USD 75-80% 5% 10%
Audacity Capital 3.67 10,000 USD 480,000 USD 129 USD 50-85% 10% 10%
Smart Prop Trader 3.57 10,000 USD 200,000 USD 67 USD 85% 4% 8%

Steps for finding the best firm without hidden rules

  • Step one – Select top firms from our list, we conduct unbiased reviews using advanced methodology and overall score.
  • Step two – Read all the main rules. If there are only a few rules listed, find the terms and conditions and read them carefully.
  • Step three – Compare your strategy to the rules. If you are planning to use EA (Expert Advisors) or trade during news, or weekends, check if the firm allows it. If there is no clear indication on the website, contact the support for details. In case the support can not answer your questions, then proceed to select another firm.
  • Step four – Select the funded account type and funding amount that adheres to your risk appetite and trading strategy rules.

Another approach is to scan through the internet and check trader comments for each prop firm to ensure they are safe.

FAQs on prop firm hidden rules

Why does prop trading have hidden rules?

What happens if you violate the hidden rules of prop trading?

What are forex prop firm hidden rules?

Do all prop firms have hidden rules?

Are hidden rules for prop firms legal?

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