So you're considering jumping into futures trading with a prop firm. First things first—great idea. Futures are action-packed, adaptable, and full of possibility, and trading them with a prop firm means you don't have to risk your own money in order to get in on the action. But before you go headfirst into hitting buy and sell buttons, there is one thing you need to get your head around: the rules.
Prop shops aren't simply dispensing free money and letting you do as you please. They institute guardrails—risk controls, daily loss limits, position size limits, and so on. And if you blow through those? Well, let's just say you'll be going shopping for another evaluation challenge before you know it.
This guide is intended to simplify the key points of futures prop firm rules and risk management into something that doesn't seem quite so daft. Consider it your guidebook to remaining funded (and sane) learning the ropes.
Why Prop Firms Have Rules in the First Place
Prop firms are not out to make your life miserable with all these rules. Their regulations serve a purpose.
Suppose you lent your friend $100,000 and asked him to trade it in the markets. If you did not impose some guardrails, he may risk the entire thing in a single position. A single miscalculation and voila—your account is zero.
Prop firms are the same way. They don't want gamblers who double up on every trade. They want traders who can steadily increase accounts, not those who double up on every transaction. Their policies exist to safeguard their money and, candidly, to discipline you. If you can trade inside of theirs, you'll likely do fine with your own money as well.
The Basics: What Futures Prop Firms Look For
When you join a futures prop firm, you're typically subjected to an evaluation or "challenge." That's where the policies kick in. Although each firm has its own specific numbers, the format is fairly standard across the board. Here are the major ones you'll nearly always find:
- Profit Targets – You must reach a specific profit target (e.g., $3,000 on a $50k account) to succeed in the evaluation. It demonstrates you are able to make money, actually.
- Daily Loss Limits – Go over this amount in a single trading day and your account is finished.
- Max Drawdown – This is how far your account can fall from its high balance. Go beyond it and you are out.
- Position Size Limits – Most companies limit how many contracts you can trade at a time.
- Consistency Rules – Some companies don't want all your profit to be in one lucky trade. They need consistent results over several days.
It sounds pretty simple, doesn't it? The catch is actually trading within those rules and making your way toward your profit goal anyway.
Daily Loss Limits: The First Rule You'll Hit
Let’s start with the one most newbies struggle with—the daily loss limit.
Say you’re trading a $50k evaluation with a daily loss cap of $1,000. That means if you’re down $1,000 at any point during the trading day, you’re done. Not “done until tomorrow.” Done as in the firm closes your account and you’ve failed the challenge.
Futures trading for beginners tend to consider the loss limit as their "budget" for the day. Wrong attitude. Consider $1,000 as play money, and you'll continue to add trades until you spend it. It is better to consider it a hard line, like the edge of a cliff. Step over and you fall.
Practical tip: Never risk more than a small fraction of your daily limit on one trade. If your daily loss limit is $1,000, risking $500 on one setup is courting disaster. Leave some room to breathe.
Max Drawdown: The Silent Killer
The other giant is max drawdown, which can be trailing or static.
Trailing drawdown refers to your cushion advancing when your account increases. For instance, if your account begins at $50k with a $2,500 trailing drawdown, your account cannot go below $47,500. But if you increase the account to $52k, your level of drawdown trails up to $49,500. Slick part? If you're in the green and then bleed it all back, you can nevertheless lose even though you're technically over your beginning amount.
Static drawdown is absolute. You begin at $50k with a $2,500 limit, and as long as you don't go below $47,500, you're good to go—even if you're on a heater and give it all back.
Trailing drawdown is more challenging for novice traders since it penalizes returning profits. The greatest defense? Don't blow up after a heater. Lock in profits and reduce size once you're in the green.
Position Sizing Rules: Contracts Matter
Futures trading prop firms also place restrictions on the number of contracts you can trade. This isn't to be pesky—it's to prevent you from growing too quickly.
For instance, on a $50k account, you may be permitted a maximum of 6 contracts. But it doesn't mean you trade 6 contracts all the time. The companies want to know you can scale responsibly. Begin with 1–2 contracts and only increase when your setups and risk management are solid as a rock.
One of the most common rookie errors? Believing that the more contracts you trade, the sooner you'll hit the profit target. You may, yes, but you'll hit the loss limits much sooner as well. Prop trading is a marathon, not a sprint.
Consistency Rules: No "One-Hit Wonders"
Some companies impose another condition: consistency rules. Essentially, they don't want the entire evaluation profit to be the result of one trade or one day.
Why? Because one time being lucky doesn't mean you can trade repetitively. These regulations compel you to put your gains out over distance and demonstrate consistent ability.
The solution here is easy: don't try to hit a home run. Take little, consistent victories rather than relying on one monstrous trade to carry you to the finish line.