Prop Firm Rules Explained: Drawdown, News Trading, and Consistency

You passed the challenge. You got the certificate. You placed your first trade on the funded account. Two days later, you get an email: "Account Breach: Violation of Consistency Rule."

Your account is gone.

This happens to thousands of traders every month. They read the profit target but ignored the fine print. In 2026, firms have introduced even more complex rules to manage risk. Here is your dictionary to survival.

1. Drawdown Types (The Most Dealer-favored Rule)

This is the rule that kills the most accounts.

A. Static Drawdown (The "Good" One)

• Definition: Your loss limit is fixed based on your Initial Balance.
• Example: $100k Account. 10% Max Drawdown.
• Breach Level: $90,000.
• Scenario: You profit up to $110,000. Your breach level is STILL $90,000. You have a massive $20k buffer.
• Who has it: The 5%ers, some FTMO accounts.

B. Relative / Trailing Drawdown (The "Bad" One)

• Definition: Your loss limit trails (follows) your highest equity point (High Water Mark).
• Example: $100k Account. 10% Max Drawdown.
• Scenario: You profit up to $105,000.
• New Breach Level: $105,000 - $10,000 = $95,000.
• The Trap: Even though you are in profit ($105k), you are closer to your breach level ($95k) than you think. If you lose $10k from your peak, you lose the account, even if you are still above $100k!

2. The "Consistency Rule"

This rule prevents "One Hit Wonders"—traders who gamble 100% margin on NFP, get lucky, and pass.

• Common Rule: "No single day's profit can exceed 30% of your total profit."
• Example: You profit $10,000 total.
• Limit: Your best day cannot be more than $3,000.
• If you breach: They typically won't ban you, but they will remove that "lucky day" profits and ask you to keep trading. It wastes your time.

Fix: Break your trades into smaller chunks. Consistent, boring wins.

3. Mandatory Stop Loss

• Rule: Every trade must have a Stop Loss set within 60 seconds of entry.
• Why: To prevent catastrophic losses if their server disconnects.
• Advice: Use a trade manager (like the one in our Simulator) to auto-place SLs. Human memory is not reliable.

4. News Trading Restrictions

• Hard Breach: Opening a trade 2 mins before/after Red Folder news. Account terminated.
• Soft Breach: Profits made during news are deducted. Account stays live.
• Allowed: Trading news is fine.
• Check: ForexFactory calendar. If it's RED, assume it's dangerous unless your firm is Maven or MyFundedFX.

5. IP Address Matching

In 2026, firms are cracking down on "Account Management" (hiring someone else to trade for you).

• Trigger: You login from London on Monday. You login from New York on Tuesday.
• Flag: Account suspended for investigation.
• Solution: If you travel, use a VPS (Virtual Private Server). Keep your trading IP static. Never trade from a hotel Wi-Fi without knowing the risks.

Summary

Read the FAQ. Not the sales page. The sales page sells the dream. The FAQ lists the traps.