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Prop firm challenge rules: loss limits and drawdown

By TellHawk Research · October 12, 2026 · 6 min read

A funded-account challenge is an evaluation. You pay a fee, trade a simulated account under a set of rules, and if you meet the target without breaking any rule, the firm may offer a funded account on its terms. The rules decide the outcome as much as the trades do: breaking a loss limit ends an attempt however good the idea was. This guide explains the common rules in plain words. It is general information; the firm's own current terms are the only authority for your account.

Key takeaways

• The number that matters is the distance to a limit in money, before every trade, measured the way the firm measures it.
• Firms differ on balance versus equity, on when the day resets, and on static versus trailing floors, and one firm can differ between its own account types.
• Rules change, so write down the wording and the date you checked it.

The usual rules

These are the rule types you will meet. The examples in this guide come from two firms' own published pages, retrieved on 2026-10-12, and are examples only: FTMO trading objectives and Topstep's Maximum Loss Limit article. Check the firm's current rules before relying on any detail.

• Profit target. The gain you must reach, usually defined against the starting balance of the account.
• Maximum daily loss. How far the account may fall within one trading day. Firms differ on whether it is measured on balance or on equity (which includes open trades, and in FTMO's definition swaps and commissions), from which starting point, and when the day resets. FTMO, for example, recalculates its daily limit at 00:00 Central European (Summer) Time from the balance at that moment.
• Maximum total loss, or drawdown. The overall floor. It is either static or trailing.
• Minimum trading days. A count of days on which you must place trades. FTMO defines a trading day as a day on which at least one position is opened.
• Consistency rules. A cap on how much of the total profit may come from one day or one trade. FTMO's page describes a version based on the best day's share of total profit.
• Conduct rules. Firms may add restrictions on instruments, position size, or tools. Read the full rules page, not only the headline table.

Static versus trailing drawdown

A static limit is a fixed floor measured from the starting balance. On a hypothetical 100,000 account with a 10,000 static limit, the floor is 90,000 and stays there. A trailing limit follows the account's highest point. In the same example, if the account rises to 106,000 and the limit trails the peak, the floor moves to 96,000, so the room you have shrinks as you win. Whether the trail follows intraday equity or only the end-of-day balance, and whether it stops, depends on the firm. Topstep's article describes a limit that rises with the end-of-day balance, is monitored in real time including unrealized profit and loss, and locks once it reaches the starting balance. FTMO's page describes a static limit on some account types and trailing limits on others. This single detail changes how much risk a given position size really carries, so read the exact wording for the account you hold.

A worked example with made-up numbers

Take an invented firm with a 100,000 account, a daily loss limit of 5,000 measured on equity from the day's opening value, and a static maximum loss of 10,000. You start the day at 100,000. Your daily limit is 5,000, so the equity floor for the day is 95,000. You take a trade risking 1,000 and it goes against you; floating losses on open trades count, so the buffer is now 4,000. A second trade risking 2,000 is allowed by the rules, but if both lose together you are 2,000 from the daily limit and the costs have not been counted yet. The point of the arithmetic is that the useful number is not the limit but the distance to it, before every trade.

How to track the rules

1. Write each rule down exactly as the firm words it, with the date you last checked the page.
2. Before each trade, compute your distance to the daily limit and the overall limit, in money, using the firm's own measure (balance or equity).
3. Size positions so a normal stop-out uses a small fraction of that distance.
4. Track the consistency and minimum-day rules as running counters, not as an afterthought.
5. Re-read the rules when the firm updates them; firms change terms, and old screenshots go stale.

Questions to ask about any firm's rules

• Is the daily limit measured on balance or on equity, and does it include open trades, swaps and commissions?
• When does the "day" reset, and in which time zone?
• Is the maximum loss static or trailing, and where does a trailing floor stop?
• Is there a time limit on the challenge, or none?
• Which instruments, strategies or news windows are restricted?
• What happens on a breach: the attempt ends, or the account is reset for a fee?

Common misunderstandings

Traders often assume the limit counts only closed losses, then breach it with a floating loss that never closed. Others assume the day resets at midnight local time when the firm's day resets at a different hour. A third group reads the limit as a percentage of the current balance when it is defined on the starting balance. Each of these ends an attempt. Put the exact wording and the reset time next to your trading screen, and treat any rule you cannot restate from memory as one you have not understood yet.

What to keep in mind

Rules are written by the firm and interpreted by the firm. Two firms with the same headline numbers can behave very differently once the measurement details are applied. A challenge also has a fee, and passing it does not make a strategy profitable over time. Nothing here is advice to buy a challenge or to trade.

Where TellHawk fits

ProofRunner is an invitation-only workflow built around exactly this: a rule library for FX and futures firms where each field shows how sure we are of it and when it was last checked, a free Challenge Simulator, and a failure autopsy that replays what ended a run. Its methodology explains how rules are modelled and where the model can be wrong. It is a tracking and safety layer, not a trading platform or a broker. ProofRunner is not affiliated with or endorsed by any prop firm; firms are named here only as examples of their own published rules.

Sources checked

Firms' own published pages, retrieved on 2026-10-12. They show how two firms word their rules and are not a statement of what any other firm does.

• FTMO: Trading Objectives (profit target, daily and maximum loss definitions, minimum trading days, consistency)
• Topstep Help Center: What is the Maximum Loss Limit? (trailing limit, end-of-day update, lock at starting balance)