Crypto prop firm rules exist to control risk, not to make trading harder. For most traders, these rules are the primary reason evaluations and funded accounts fail. Understanding how drawdowns, daily loss limits, and rule enforcement actually work is essential before attempting any prop trading challenge.
This article explains how crypto prop firm rules typically function, why drawdowns are enforced strictly, and how these rules are applied in practice, using Velotrade’s published rules as a concrete reference point.
Highlights of this article
- Drawdown rules are the most common reason traders fail prop evaluations
- Daily loss and overall drawdown limits are enforced automatically
- Trailing drawdowns behave very differently from static drawdowns
- Rule breaches usually end accounts immediately, even if trades later recover
- Understanding the rules matters more than strategy for long-term survival
Why prop firm rules exist
Crypto prop firms deploy their own capital. Without strict limits, a small number of undisciplined accounts could generate losses that exceed all evaluation fee revenue. Rules exist to cap downside risk at the account level and enforce consistent behaviour across traders.
For traders, this means one important shift in mindset: prop trading is a rule-based environment, not a discretionary one. Profitability alone is not enough. Rule compliance is non-negotiable.
For a broader overview of the model, see: What is crypto prop trading
The core categories of crypto prop firm rules
While details vary across firms, most crypto prop firm rules fall into the same core categories.
Loss limits
- Maximum daily loss
- Maximum overall drawdown
Position and exposure limits
- Maximum position size
- Leverage caps per instrument
Behavioural and consistency rules
- Limits on how much profit can come from a single day
- Restrictions on certain strategies
Administrative rules
- Trading hours
- News or event restrictions
- Account reset and termination conditions
Velotrade documents these rules clearly on its rules page, which should be treated as the authoritative reference for how limits are calculated and enforced: Velotrade trading rules
Maximum daily loss explained
A maximum daily loss defines the largest loss allowed within a single trading day. Once this threshold is breached, the evaluation or funded account typically fails immediately.
Daily loss is commonly calculated from:
- the starting balance of the day, or
- the highest equity reached during the day
The exact calculation method matters. Traders should always confirm which reference point applies.
Example: If a $100,000 account has a 5% daily loss limit, losing more than $5,000 in one trading day usually ends the evaluation, even if equity later recovers.
Daily loss limits are designed to stop emotional recovery attempts after a bad session. Once breached, recovery is not allowed.
Overall drawdown and trailing drawdown
Overall drawdown limits the total amount an account can lose over its lifetime.
There are two common drawdown types:
- Static drawdown: calculated from the initial account balance
- Trailing drawdown: moves upward as equity reaches new highs
Trailing drawdowns are stricter and frequently misunderstood. When equity increases, the drawdown threshold moves closer to the current balance, reducing the margin for error.
Note: With trailing drawdown, profitable trades can reduce future risk tolerance. Making money does not always increase flexibility.
Velotrade explains its drawdown logic and thresholds explicitly in its rules documentation. Traders should review those definitions carefully before trading.
Position sizing, leverage, and exposure limits
Most crypto prop firms restrict:
- leverage per asset
- maximum position size
- total exposure across correlated instruments
These limits are particularly important in crypto markets, where volatility can cause rapid equity swings. Breaching exposure limits can trigger forced liquidation or account failure.
Traders accustomed to unrestricted personal accounts often underestimate how quickly leverage limits constrain strategy execution.
Consistency rules and behavioural constraints
Some prop firms enforce consistency rules that limit how much profit can come from a single trading day. The intent is to discourage gambling-style behaviour and reward steady execution.
Other behavioural constraints may include:
- prohibitions on martingale strategies
- restrictions on copying trades
- limits around high-impact news events
Violations are typically enforced automatically.
Why drawdowns cause most failures
Most traders do not fail because their strategy is unprofitable. They fail because they break rules under pressure.
Common patterns include:
- increasing position size after losses
- trading too frequently to recover quickly
- ignoring daily loss limits late in the session
Prop firm rules punish emotional responses immediately.
For a behavioural deep dive, see: Why most retail traders fail prop challenges
How to approach prop firm rules realistically
Before starting any evaluation, traders should be able to answer three questions clearly:
- What exact action ends the account immediately
- How much room for error exists at any point in time
- Whether their strategy can operate within those limits
If a strategy requires frequent drawdowns near the limit, it is structurally incompatible with prop trading, regardless of long-term expectancy.
How this fits into the bigger picture
Understanding rules and drawdowns is one part of evaluating whether crypto prop trading is appropriate at all.
For the full model overview, revisit: What is crypto prop trading
To assess whether a specific firm is suitable, see: How to evaluate a crypto prop firm
