For this reason, most prop firms restrict certain trading styles. The goal of this article is not to encourage any form of rule breaking. Instead, it is an educational overview of strategies that are often limited or prohibited, and an explanation of why this happens and what traders should keep in mind.
Rules always depend on the specific company. Before trading, carefully read the terms and conditions of your prop firm or broker.
1. Arbitrage and Price-Feed Exploitation
Arbitrage in its classical form means profiting from price discrepancies between similar or identical instruments on different venues. In practice, some variations of arbitrage are not welcome in prop environments, especially when they are based on technical imperfections rather than genuine market analysis.
1.1. Inter-Broker or Hedge Arbitrage
In this approach a trader opens opposite positions on two accounts or two brokers, trying to profit from small price differences or latency between data feeds. The intention is to exploit infrastructure, not to take directional market risk.
1.2. Reverse Arbitrage and Latency Arbitrage
Reverse or latency arbitrage focuses on using delays in price updates or execution speed. For example, one account receives a new quote faster than another, and the trader tries to open or close trades before the slower side “catches up”.
1.3. Exploiting Platform Errors
Sometimes a platform may show incorrect quotations or fail to update prices for a short time. Opening trades with the intention to benefit from an obvious error in the price feed is usually classified as abuse of the system and can lead to cancellation of trades or termination of the account.
From the firm’s point of view, such techniques create asymmetric risk and can damage relationships with liquidity providers. Therefore many prop firms explicitly restrict these practices.
2. High-Frequency and Tick-Based Scalping
Another sensitive area is ultra-short-term trading with very high trade frequency. Not every scalping strategy is prohibited, but some specific styles are often limited.
2.1. High-Frequency Trading (HFT)
HFT strategies open and close positions within milliseconds or a few seconds, often thousands of times per day. They depend on extremely fast execution and are closer to infrastructure competition than to classical discretionary or algorithmic trading. Most retail-oriented prop firms are not designed to support HFT-level order flow.
2.2. Tick Scalping
Tick scalping focuses on minimal price changes from tick to tick, with very small profit targets and short holding times. When this is combined with large volume or a big number of accounts, it may create a heavy load on servers and look similar to latency exploitation.
2.3. Night / Rollover Scalping
Some Expert Advisors are specifically programmed to trade during rollover, when liquidity is thinner and spreads can widen. They try to use small, temporary price jumps or spread changes. Because these moves are often related to technical conditions of liquidity rather than market direction, such strategies may be restricted.
3. News Bracketing and Volatility “Lotteries”
High-impact economic releases (for example interest rate decisions or employment data) can cause sharp moves. Some strategies place a group of pending orders around the price shortly before the news.
3.1. Bracketing Strategies Around News
A common pattern is placing both buy stop and sell stop orders very close to the current price just before the event. The idea is that one of the orders will be activated by the spike and capture a fast move.
However, slippage, gaps and spread widening can create inconsistent and difficult-to-hedge results for the firm. Therefore many prop firms either restrict news trading completely or specifically forbid such bracketing techniques.
4. Bulk Trading, Copy Trading and Trade Coordination
The trading flow of a single account is one thing. The trading flow of many accounts acting in the same way at the same time is a different risk profile, especially for a prop firm.
4.1. Bulk Trading with Many Simultaneous Orders
Some automatic systems open a large number of positions at once (for example grids or martingale systems). When the volume is multiplied by several accounts, this can create a substantial and sudden load on the firm’s infrastructure and risk limits.
4.2. Trade Coordination and Copy Trading
Coordinated trading occurs when several accounts follow identical entries and exits. It can be manual (coordination in a group) or automated (trade copier, signal following, social trading). If the firm and its liquidity providers receive the same order pattern from many accounts at the same time, it may be seen as concentrated or toxic flow, so it is often limited by the rules.
4.3. Third-Party Expert Advisors
When many traders purchase the same EA from a third-party provider, their behavior becomes almost identical. If this EA is aggressive (for example, arbitrage or ultra-short-term scalping), some prop firms may block its use or request detailed information about the strategy.
In addition, when the trader does not own the source code and cannot explain how the EA works, it is more difficult to prove that the strategy respects the company’s restrictions.
5. One-Sided Trading and Lack of Analysis
Prop trading is usually based on the idea of disciplined risk management and systematic decision making. Some firms pay attention to whether the trading style reflects these principles.
5.1. One-Sided Bets
An example of one-sided behavior is taking long positions only on a particular pair without considering technical or fundamental conditions. If a trader repeatedly ignores market context and risk limits, this can be viewed as speculative gambling rather than a structured strategy.
Even if the firm does not formally prohibit such trading, it usually leads to high drawdowns and violations of maximum loss rules, which automatically close the account.
6. Account Sharing and External Account Management
Besides purely trading-related practices, most prop firms are strict about who actually controls the account.
6.1. Account Sharing or Reselling
Providing access to your prop account to another person or selling/renting it is usually forbidden. These actions can conflict with KYC rules and make risk management impossible, because the firm no longer knows who is making the decisions.
6.2. “Pass Your Challenge” and Account Management Services
Some services offer to trade challenge or evaluation accounts on behalf of the original client, often for a fee or a share of future profits. In most prop firm agreements this is not allowed, because the person taking the test and the actual trader must be the same.
7. Possible Consequences of Rule Violations
If a firm concludes that its rules have been seriously violated, it may:
- Cancel trades that were clearly based on incorrect prices or technical errors;
- Terminate the evaluation or funded account;
- Limit access to some instruments or trading styles;
- Refuse further cooperation with the trader.
Again, the exact actions depend on the specific contract and internal policies. The primary idea is that the company must protect its infrastructure, liquidity relationships and other traders who follow the rules.
8. Practical Recommendations for Traders
To build a long-term relationship with any prop firm it is useful to:
- Carefully read and periodically review the firm’s trading rules;
- Avoid strategies that depend on technical imperfections, price feed delays or obvious errors;
- Use risk management that fits the firm’s maximum loss and drawdown limits;
- Understand every EA you use and be ready to explain its logic if needed;
- Focus on transparent, repeatable strategies based on market analysis, not on “loopholes”.
Prop trading can be a useful tool for disciplined traders, but it requires respect for both market risk and the technical boundaries set by the firm. Understanding which strategies are commonly restricted helps to design trading systems that are robust, transparent and compatible with most professional environments.
Example of a Risk-Managed Strategy
If you are interested in seeing a practical example of a strategy that one of my clients successfully used in a prop trading evaluation, you can study it here: example strategy.
This material is provided for educational purposes only and does not constitute investment advice or a guarantee of passing any evaluation or obtaining similar results. Trading involves risk, and past performance does not guarantee future outcomes.
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