Funded Trading Rules and Parameters Explained – How to Pass an Evaluation and Maximize Profit

Funded trading allows traders to use a prop firm’s capital to trade in financial markets. Prop firms have specific rules and parameters that traders must follow to qualify and maintain a funded account. This guide explains the key terms, rules, and strategies for successful funded trading.

You can start reading our article “What You Need to Know Before Choosing a Prop Firm” to help you in choosing a prop firm. And if there are terms you are not familiar with, then this article can help.

Understanding Funded Trading

To succeed in funded trading, it’s essential to understand the specific rules and terminology used by proprietary (prop) firms. Each firm sets its own guidelines, and failure to follow them can lead to your account being suspended. Since traders come from diverse backgrounds and English may not be their first language, misunderstandings can occur. Therefore, having a clear understanding of these rules is crucial to maintaining your funded account and avoiding costly mistakes.

Broker

A broker acts as an intermediary between traders and the securities exchange, facilitating trade execution. Many prop firms partner with established brokers to provide trading access. Popular brokers used by prop firms include Eightcap and Purple Trading Seychelles, which are both used by The Funded Trader. FTMO partners with CMC and GBE Brokers for their trading platforms.

Some prop firms bypass third-party brokers altogether and work directly with institutional liquidity providers. This approach allows for tighter spreads, no commissions or swaps, and deeper market liquidity. Firms like Audacity follow this model, which some traders prefer for its cost efficiency and faster trade execution.

Evaluation

The evaluation phase (often referred to as a “challenge”) is a key step where prop firms assess a trader’s ability to meet specific performance targets. Most firms require traders to hit a 10% profit target within 30 days to pass the first phase.

• Single-Phase Evaluation: Some firms, such as SurgeTrader and FTUK, have a simplified evaluation structure with only one phase.
• Two-Phase Evaluation: Most firms have two phases:
  • Phase 1: Hit the profit target (usually 10%) within 30 days.
  • Phase 2 (Verification): Meet another profit target (typically 5%) within 30–60 days.

Not all prop firms require an evaluation. Some firms, such as FundYourFX and Audacity, offer direct funding without the need to pass a challenge. In these cases, traders may be asked to complete a phone interview about their trading experience and strategy instead. These direct funding options are attractive to traders who prefer to avoid the time and expense of retrying challenges. FTUK stands out by offering both evaluation-based and instant funding programs, giving traders more flexibility.

Drawdown

A drawdown refers to the decline in an account’s value from its highest point to its lowest point. Every prop firm imposes a maximum drawdown limit to manage risk. Some firms enforce stricter limits than others:

• Strict Drawdown: Firms like SurgeTrader and Blue Guardian Capital allow only a 4% daily drawdown and a 5% total drawdown — challenging for less experienced traders.
• Generous Drawdown: Other firms offer more flexibility, with limits reaching up to 10%, giving traders more room to manage their strategies.

Understanding the drawdown policy is essential since exceeding the limit will often result in account suspension or termination.

Demo Account

A demo account is a simulated trading environment where traders can practice using virtual funds without risking real money. Most prop firms conduct their evaluation or challenge phase through demo accounts to allow traders to prove their skills in a controlled setting.

• Evaluation-Based Trading: Firms like FTMO and The Funded Trader require traders to trade on a demo account even after passing the evaluation and becoming funded.
• No Demo Trading Post-Funding: Some firms transition traders to live accounts once they pass the evaluation.

Demo accounts help traders test strategies and get familiar with the platform without financial risk.

Live Account

A live account involves trading with real funds where actual profits and losses are reflected in the account balance. Some prop firms allow traders to shift from a demo account to a live account after passing the evaluation.

• Immediate Live Trading: Firms like FundYourFX provide live account funding from the start, bypassing the need for an evaluation.
• Conditional Live Access: Firms such as FTUK require traders to purchase an Instant Funding Program to access live account funding directly.

Live accounts introduce real market conditions, including liquidity, slippage, and emotional factors, which makes them a more accurate test of trading ability.

Loss

A loss is the negative outcome of a trade and is distinct from drawdown, which measures the account’s decline over time. All prop firms impose a maximum loss limit to protect capital.

• If you exceed the maximum loss limit, your funded account may be revoked or reset.
• Losses are usually calculated on both a daily and total basis.

Effective risk management strategies, including stop-loss orders and position sizing, help traders stay within the acceptable loss range and maintain their funded status.

Expert Advisor

An Expert Advisor (EA) is an algorithmic trading tool that can automate trading decisions. EAs can:

• Generate trade signals based on predefined criteria.
• Automatically place and manage trades without manual input.

Many prop traders rely on EAs to increase efficiency and remove emotional bias from trading. However, not all prop firms permit the use of EAs:

• Allowed: Firms like The 5%ers, FundedNext, and FundYourFX allow EA-based trading.
• Restricted: Some firms prohibit EAs to prevent algorithmic abuse or high-frequency trading risks.

If you plan to use EAs, it’s essential to confirm the firm’s policy beforehand to avoid account suspension.

Hedging

Hedging is a risk management strategy where a trader opens an opposing position in a correlated asset to reduce potential losses. This can be useful in volatile markets to protect against adverse price movements.

• Full Hedging Allowed: Firms like Blue Guardian Capital, FTUK, and FundYourFX allow full hedging, giving traders more flexibility in managing risk.
• Partial Hedging: FundedNext only allows one hedged position at a time, restricting more complex multi-account hedging strategies.

Hedging can help protect profits and limit losses, but understanding the firm’s hedging rules is crucial to avoid breaches.

Holding Positions

Holding positions refers to keeping trades open overnight or through the weekend, which exposes traders to after-hours price movements and potential volatility.

• Full Holding Allowed: Most firms, including OspreyFX, FundYourFX, Blue Guardian Capital, TopTier Trader, FTUK, FundedNext, and The 5%ers, allow both overnight and weekend holding.
• Partial Holding: Some firms permit overnight holding but restrict weekend positions due to increased market risk.

Holding positions can lead to higher profits but also increases exposure to unexpected market events, such as geopolitical news or economic reports released during non-trading hours.

Initial Account

An initial account is the starting capital that a prop firm provides to a trader. The size of the initial account varies depending on the firm’s funding program and the trader’s preferences.

• Higher starting capital typically requires a larger one-time fee.
• Prop firms offer funding amounts that range from a few thousand dollars to over $1,000,000 for advanced programs.
• Example: SurgeTrader offers up to $1,000,000 in funded accounts, but the entry fee increases with the size of the account.

Selecting the right initial account size depends on your risk tolerance and trading strategy.

Leverage

Leverage allows traders to control a larger position size with a smaller amount of capital. While leverage increases profit potential, it also amplifies losses, making it a double-edged sword.

• Example: With 100:1 leverage, a trader can control a $100,000 position with just $1,000 of margin.
• High Leverage: Firms like The Funded Trader, Blue Guardian Capital, and TopTier Trader offer leverage of up to 100:1 for forex.
• Low Leverage for Volatile Assets: Cryptocurrency leverage is typically capped at 2:1 due to higher volatility.

Managing leverage effectively requires careful risk control to avoid hitting loss limits.

Lot Sizes

A lot represents a standardized unit of a trading instrument. The size of the lot determines the value of each pip movement and the overall trade size.

• Prop firms calculate the maximum allowable trade size in lots.
• If a firm sets a limit of 10 lots for forex, a trader cannot open a position larger than this size.

Understanding lot sizes helps traders manage position sizing and avoid breaching firm limits.

News Trading

News trading involves taking advantage of price movements triggered by major economic announcements, such as interest rate decisions, inflation data, and employment reports.

• Allowed: Most prop firms, including OspreyFX, The 5%ers, FTUK, and FundYourFX, permit news trading.
• Restricted: Some firms restrict trading during high-impact events to avoid slippage and volatility spikes.

Successful news trading requires quick execution and a deep understanding of market reactions to economic reports.

Profit Target

A profit target is the percentage of account growth that a trader must achieve to pass an evaluation or qualify for scaling.

• Most prop firms set profit targets between 5% and 25%.
• Example: A firm may require a trader to achieve a 10% profit within 30 days to pass the first evaluation phase.
• No Profit Target: Firms like FundYourFX and Audacity do not require profit targets since they offer direct funding without an evaluation.

Profit targets are designed to test a trader’s consistency and ability to generate returns under controlled conditions.

Platform

The most widely used trading platforms among prop firms are MetaTrader 4 (MT4) and MetaTrader 5 (MT5):

• MetaTrader 4 (MT4): Primarily used for forex trading.
• MetaTrader 5 (MT5): Supports a wider range of instruments beyond forex, including commodities and indices.
• Other Platforms: Some firms offer additional platform options:
  • FTMO provides access to cTrader alongside MT4 and MT5.

Choosing the right platform depends on the type of assets being traded and the trader’s familiarity with the interface.

Profit Split

A profit split refers to the percentage of profits that a funded trader retains.

• Most firms offer profit splits between 50% and 90%.
• Example: A firm offering a 75% profit split allows the trader to keep $7,500 from a $10,000 profit.
• Unique Case: FundedNext offers a 15% profit split even during the demo phase — an uncommon feature in the industry.

Higher profit splits are attractive to experienced traders who aim to maximize their earnings from large trades.

Trading Instruments

Prop firms support a variety of financial instruments, but the specific offering varies:

• Commonly Supported: Forex, stocks, metals, crypto, indices, commodities, and bonds.
• Universal Offering: Forex is supported by virtually all prop firms.
• Example: A firm may offer 100:1 leverage for forex but only 2:1 for crypto due to higher volatility.

The availability of diverse instruments allows traders to apply different strategies based on market conditions.

Trading fees

Trading fees are the costs associated with joining a prop firm and maintaining an active account. Most firms charge a one-time fee to participate in an evaluation or receive instant funding:

• Evaluation-Based Fees: Lower fees since the firm requires traders to pass a challenge before providing capital.
• Instant Funding Fees: Higher fees because the firm provides immediate access to capital without an evaluation.
• Example Fees:
  • FundYourFX – $358 for a $15,000 funded account (evaluation-based).
  • FTUK – $664 for a $15,000 funded account.
  • MyForexFunds – $970 for a $20,000 funded account.
  • Audacity – Charges a one-time fee plus a monthly platform fee.

Understanding the fee structure helps traders evaluate the cost-benefit ratio of each prop firm.

Trading Strategy

Prop firms support a variety of trading strategies, but some impose restrictions:

• Commonly Allowed: Scalping, swing trading, day trading.
• Restricted Strategies:
  • Algorithmic Trading: Some firms limit or prohibit the use of Expert Advisors (EAs).
  • News Trading: High-impact news events can cause market volatility, leading some firms to restrict news trading.

Before joining a prop firm, traders should confirm that their preferred trading style is permitted.

Scaling Plan

A scaling plan allows traders to increase their account size based on consistent profitability.

• Most prop firms offer scaling plans that enable traders to access larger capital amounts over time.
• Example: SurgeTrader offers a funded account of up to $1,000,000 without scaling — but the one-time challenge fee is $6,500.
• The more capital available, the higher the profit potential — but firms often impose stricter drawdown and loss limits on larger accounts.

Scaling plans are ideal for experienced traders who seek to maximize profit potential with higher capital.

Stop Loss

A stop loss is an order to automatically close a trade at a predetermined loss level, protecting against excessive drawdown.

• Mandatory: Most prop firms require a stop loss to minimize risk exposure.
• No Mandatory Stop Loss: Only The 5%ers offer a program without a mandatory stop loss requirement — the Freestyle Trading Program.

While stop losses are effective for risk management, traders who prefer aggressive strategies may benefit from firms that allow more flexibility.