Prop firm challenge rules are the set of conditions a trader must meet to pass an evaluation and move to a funded account. Every firm sets its own rules, but the core structure is consistent: a profit target the trader needs to reach, a maximum drawdown the account cannot exceed, and a set of trading conditions that define what is and is not allowed during the challenge.
The drawdown rule is the most important to understand. Maximum drawdown is the lowest point the account is permitted to reach relative to either the starting balance or the highest balance achieved. Static drawdown is fixed against the starting balance. Trailing drawdown moves up with account profits, which makes the rule tighter as the trader earns. Daily loss limits add a second layer, capping how much the account can lose in a single day regardless of the overall drawdown position. Hitting either limit ends the challenge, which is why understanding exactly how the firm calculates drawdown matters more than the profit target.
