Proprietary trading firm hidden rules

In this article, we are going to go through proprietary trading firms’ hidden rules that you should pay attention to prevent losing your accounts. Most of us know that some proprietary trading firms lack an explanation on their websites about all the rules that can make you fail your evaluation or lose your funded account. However, they are protected by having them written deep in the terms & conditions so they are protected since every trader should have gone through them.

Let’s start with general trading strategies and rules that proprietary trading firms prohibit:

• High-frequency trading
• Ultra-fast scalping
• Latency arbitrage trading
• Any tick scalping strategies
• Any reverse arbitrage trading
• Any hedge arbitrage trading
• Hedging between different accounts

Now that we have gone through the general trading strategies and rules that proprietary trading firms prohibit let’s go through some of the other rules that are most often not displayed and are sometimes breached without even knowing they exist.

1. Maximum lot size limit

A maximum lot size limit means that you have a limitation based on your trading balance, or based on specific trading instruments.

2. Risk per position rule

The risk per position rule shows us the specified percentage we can risk for a given trading instrument.

3. Mandatory stop-loss rule

The mandatory stop-loss rule means that we need to set a stop-loss on every position or buy/sell limit before opening it.

4. Consistency rule

Consistency rule in general means that you are expected to trade based on your trading style with similar risk and lot sizes.

5. Maximum number of positions open at the same time

The maximum number of positions open at the same time tells us how many positions we can have open in general or for each trading instrument.

6. Minimum open trade time

Minimum open trade time tells us how long should our open position be open before being able to close them to not breach the rule. This time can vary from a couple of seconds and upward.

7. Consistent trading during the minimum trading days period

Consistent trading during the minimum trading days period means that if you have a 10 minimum trading days requirement and reach your required profit target in 7 days, you are expected to stick with your original trading strategy. This means that despite hitting the profit target, you are not allowed to reduce risk (for example open positions with 0.01 lot sizes in the remaining 3 days).

8. Risk desk team

If a proprietary trading firm has a risk desk team, this means that when you successfully finish your evaluation challenge, they analyze your progress to determine if your trading style/strategy is compatible with the firm’s beliefs of trading. If they decide that your trading is not fitting for their trading firm, you will receive a refund based on the evaluation challenges that you purchased.

9. No gambling mentality allowed

No gambling mentality allowed actually means that you are expected to trade without overexposing your account to complete the challenge as quickly as possible, but to remain disciplined and by following your trading strategy to reach your required profit targets.

10. Martingale

The Martingale trading strategy is doubling up on losing positions and reducing winning bets by half. It is a strategy that promotes a loss-preventing mentality that tries to improve the odds of breaking even but in cases of more losses occurring they are severely higher than normal since more positions go in the opposite direction. Based on the explained principle many prop firms don’t allow the martingale strategy, or they somewhat limit it.

11. Grid systems

Grid systems in forex are one of the automated methods of trading, which essentially remove the stress of manually opening and closing trades. It means that placing several buys and sell stop orders with previously calculated intervals above or below the current market price is not allowed.

12. Hedging

Hedging is a trading strategy that places two trades at the same time in the opposite direction to reduce the risk of any adverse price movements. However, it is not allowed due to overexposure that comes from higher spreads and market gaps.

13. EAs

EAs are automated robots that trade instead of the trader. Despite the fact most proprietary trading firms allow them, they often don’t tell us that they are only allowed if you are the author of the EA itself. You are not allowed to buy EAs that were made by other people since it could result in more people using them and making higher amounts of the proprietary trading firm capital exposed.

14. Trade copiers

Trade copiers are EAs that allow you to copy trades from one master account to more copy accounts. Most proprietary trading firms allowed them, but only if you copy trades from your other master account and not from other signal providers. The reasoning is similar to the EAs one since it could result in more people using them and making higher amounts of the proprietary trading firm capital exposed.

How about you? Have you ever failed an evaluation or lost your account due to a breach of a rule that was hidden deep in the proprietary trading firms’ terms & conditions? If so leave a comment regarding what exactly was your unfortunate breach caused by.