Risk in futures trading

Three things that are worth understanding before you pay for an evaluation: how losses compound, what the law in the United States and Europe actually covers, and where a simulated account sits in relation to both.

Educational Sources checked October 2026 Primary sources

What this page is. An explanation of mechanics and of published law, written for people comparing prop firms on this site. It is not financial advice, it is not legal advice, and it is not a substitute for the risk disclosure your broker is required to give you. Nothing here predicts what any account will do. We earn affiliate commissions from some of the firms discussed on this website, which is exactly why this page cites its sources instead of asking you to take our word for anything.

The arithmetic works against recovery

Before any question of law or of strategy, there is a piece of arithmetic that decides how much room for error an account really has. It is not an opinion and it does not depend on what you trade.

A loss and the gain that undoes it are not the same size

If an account falls by a fraction L of its value, the gain needed to return to where it started is L ÷ (1 − L), measured against the smaller balance that is left. The two numbers are equal only when they are both zero, and they diverge faster the further down you go.

Lose 10% and you need 11.1% to get back. Lose 50% and you need 100%. Lose 80% and you need 400%. The curve below is that formula and nothing else — no assumption about markets, no sample of traders.

What it takes to get back to even

Gain required on the remaining balance, as a function of the loss already taken

Gain required to recover a given loss
Loss	Gain needed
10%	11.1%
20%	25%
30%	42.9%
40%	66.7%
50%	100%
60%	150%
70%	233.3%
80%	400%
90%	900%

The curve stops at 80% because the rest of it does not fit on a page: a 90% loss requires a 900% gain. This is the reason position limits and daily loss limits exist at all, and the reason an evaluation that ends on a breach cannot be reasoned about as though the next attempt starts from the same place — it starts from the same balance, but after another fee.

A drawdown allowance is a distance, and leverage sets the scale

Evaluation accounts are sold with a maximum drawdown — the amount an account may fall before it is closed. It is quoted in dollars, which makes it feel like a budget. It is better understood as a distance the market has to travel against you, and the number of contracts you hold is what converts dollars into distance.

The conversion is fixed by the contract specification. One E-mini S&P 500 future moves $50 for every index point; one E-mini Nasdaq-100 future moves $20 per point. Against a $2,500 allowance, those rates mean very different amounts of room.

How far the market can move before a $2,500 allowance is gone

Index points of adverse movement, by contract and position size

Points of adverse movement absorbed by a $2,500 allowance
Position	Points
1 NQ	125
2 NQ	62.5
1 ES	50
3 NQ	41.7
2 ES	25
3 ES	16.7

Nothing here is a forecast — it is division. Trading three E-mini S&P 500 contracts instead of one does not make an account three times more productive; it makes the same allowance absorb one third of the movement. The micro contracts are a tenth of the size, at $5 and $2 per point, which is why they exist. Every figure here comes from the contract specification — ES is $50 × the index, NQ is $20 × the index — and specifications are revised from time to time, so read the current one before you trade.

A trailing threshold moves up with your profit, not back down

Most evaluations use a trailing drawdown rather than a fixed floor. The threshold is set a fixed distance below the highest balance the account has ever reached, and it follows that high water mark upwards without ever following it back down.

The consequence is counter-intuitive and catches people out: a profitable account can have less room than it started with. Below is one account under a $2,500 trailing rule. It never falls far, and it is still above its starting balance at session nine — yet by then almost all of its margin for error is gone.

The same account, and the threshold chasing it

Illustration of a $2,500 trailing drawdown on a $50,000 account

Balance and trailing threshold by session
Session	Balance	Threshold	Room
1	$50,000	$47,500	$2,500
6	$51,800	$49,300	$2,500
10	$50,200	$49,300	$900
12	$49,100	$49,300	breached

Account balance Trailing threshold

The account ends $900 below where it opened and is closed for it, because the threshold kept the ground it gained at the peak. Trailing rules are not standardised. Some firms trail the intraday high rather than the closing balance, some stop trailing once the account is up by a set amount, and some apply a separate daily loss limit on top. The rule that applies to you is the one in the contract you accept, not the one described here.

United States: what the rules cover, and what they leave out

American futures regulation is specific and well documented. The difficulty is not that it is weak — it is that most of it is attached to a futures account, and an evaluation is not one.

What a real futures account carries with it

Futures are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission, with the National Futures Association acting as the industry's self-regulatory body. When you open an account with a futures commission merchant, three things follow automatically.

17 CFR § 1.55 — Risk disclosure statement

An FCM may not open a futures account until it has furnished a separate written disclosure and obtained your signed, dated acknowledgment. The prescribed statement opens: The risk of loss in trading commodity futures contracts can be substantial. Institutional customers are excepted under § 1.55(f).

CEA § 4d(a)(2) — 7 U.S.C. § 6d(a)(2), and 17 CFR § 1.20

Money you deposit to margin trades must be treated as belonging to you, separately accounted for, and not commingled with the firm's own funds.

Segregation is an accounting duty, not insurance. If an FCM fails and the segregated pool is short, futures customers share the shortfall pro rata within their account class. Both outcomes have happened: MF Global's customers were ultimately made whole through years of litigation, and Peregrine Financial's were not.

SIPC — what it does not cover

SIPC protects securities customers of failed broker-dealers. In its own words, it does not protect commodity futures contracts (unless held in a special portfolio margining account). There is no FDIC equivalent for futures. A trading account is not a bank deposit and is not insured like one.

Where an evaluation account sits

An evaluation is a simulated account. No money of yours is posted as margin at an FCM, because there is no futures position to margin. What you have bought is a service under a contract with the firm, and what governs that relationship is the contract's own terms.

Futures account at an FCM Covered

Firm is registered with the CFTC and an NFA member, checkable in a public database
Written risk disclosure required before the account opens
Your margin is segregated from the firm's own money
A defined bankruptcy regime if the firm fails
NFA arbitration available for disputes

Simulated evaluation account Not covered

Firm may hold no registration at all, and often does not
No § 1.55 statement, because no futures account is being opened
Your fee is revenue of the firm, not segregated customer margin
If the firm fails, you are an ordinary creditor
Disputes follow the contract's own governing law and venue

This is a difference in legal category, not a judgement about any firm. A well-run evaluation business can be perfectly honest. The point is that if something goes wrong, the statutory protections listed for a futures account are not the ones you will be relying on — the contract is. Read it, particularly the clauses on rule changes, account termination and payout conditions.

Who the advertising rules actually bind

Two well-known rules govern performance claims in the futures industry. Both are worth knowing — and so is the fact that neither reaches a firm that is not registered.

17 CFR § 4.41(b)(1)(i) — Hypothetical results

Simulated or hypothetical performance must carry a prescribed disclaimer, prominently and in immediate proximity to the results, beginning: These results are based on simulated or hypothetical performance results that have certain inherent limitations.

This rule binds commodity pool operators and commodity trading advisors and their principals.

NFA Compliance Rule 2-29 — Communications with the public

Prohibits deceptive communications and high-pressure tactics, bars the claim that trading is suitable for everyone, and forbids discussing profit potential without an equally prominent discussion of risk.

It binds NFA members.

The gap this leaves

A firm that is neither an NFA member nor a registered CPO or CTA is outside both rules. That does not make its marketing lawful — the CFTC's anti-fraud authority under CEA § 6(c)(1) needs no registration, and the FTC Act reaches deceptive advertising generally — but it does mean the specific, prescriptive disclaimer requirements above may simply not apply to the page you are reading a profit claim on.

You can check any firm's status yourself in NFA BASIC, the public register of CFTC registrants and NFA members. A firm that does not appear in it is not registered.

16 CFR Part 255 — Endorsements and testimonials

The FTC's guides, revised in 2023, require disclosure of material connections an audience would not expect. Affiliate commissions and free or discounted accounts are material connections.

This one applies to sites like this one. Ours is disclosed at the foot of this page and on every page that carries an offer.

Two things that are commonly misstated

The $25,000 day-trading minimum is not a futures rule

The pattern day trader requirement sits in FINRA Rule 4210(f)(8)(B) and applies to margin accounts at securities broker-dealers. It has no futures equivalent. Futures margin is set by the exchange and by the FCM, and can be changed by either at short notice — which is a real risk in its own right, just not this one.

There is no US guidance specific to evaluation programs

We could not find any CFTC or NFA advisory, customer alert or interpretive notice addressing futures "funded trader" programs. Claims that a particular rulemaking or notice covers them should be treated sceptically until you can open the document yourself on cftc.gov or nfa.futures.org. Absence of guidance is not approval, and it is not condemnation either.

Europe and the United Kingdom

European retail protection for leveraged trading is strong, specific, and aimed at a product that is not the one you are probably thinking of. Getting that distinction right matters more than any individual number.

The general frame

Directive 2014/65/EU (MiFID II)

Article 24(1) requires firms to act honestly, fairly and professionally in the best interests of their clients. Article 24(3) requires all information, including marketing, to be fair, clear and not misleading.

Article 25(2) imposes a suitability assessment where there is advice or portfolio management. Article 25(3) imposes an appropriateness test on non-advised services, and Article 25(4) allows an execution-only exemption from it only for non-complex instruments — which is why a CFD provider can never skip the test.

The CFD measures, and the status people get wrong

In 2018 ESMA used its product intervention power to prohibit the sale of binary options to retail clients and to restrict contracts for difference. The CFD restriction capped leverage, forced automatic close-out, guaranteed negative balance protection, banned trading incentives, and required a standardised risk warning showing that provider's own percentage of losing retail accounts.

Two corrections are needed to how this is usually described.

The 2018 CFD leverage limits

Maximum leverage on opening a retail CFD position, by underlying

Maximum retail CFD leverage by underlying
Underlying	Limit
Major currency pairs	30:1
Non-major currencies, gold, major equity indices	20:1
Other commodities, non-major equity indices	10:1
Individual equities and other reference values	5:1
Cryptocurrencies	2:1

Alongside the caps: close-out when account equity reaches 50% of required margin, negative balance protection per account, a ban on bonuses that incentivise trading, and the provider-specific risk warning in the form …% of retail investor accounts lose money when trading CFDs with this provider.

Correction 1 — none of this applies to futures

The ESMA decision defines a CFD as a derivative other than an option, future, swap or forward rate agreement. Exchange-traded futures are expressly outside these measures. A European retail trader buying an E-mini contract does not get a 20:1 cap, a 50% close-out rule or negative balance protection from this regime. Futures margin is set by the exchange, exactly as in the United States.

Correction 2 — the ESMA measures are no longer the legal basis

ESMA's powers were temporary and renewable. The measures were renewed quarterly and lapsed on 31 July 2019. What is in force today is a set of permanent national measures adopted by each national competent authority under Article 42 of MiFIR, mostly mirroring the ESMA text. If you need to rely on a rule, cite your own regulator's instrument, not the 2018 decision.

United Kingdom — FCA COBS 22.5

The FCA made its own domestic rules, in force from 1 August 2019. They mirror the substance but are expressed as minimum margin percentages rather than ratios: 3.33% for major currency pairs and sovereign debt, 5% for major indices, minor currencies and gold, 10% for minor indices and non-gold commodities, 20% for shares and other underlyings. There is no cryptocurrency tier because retail crypto-derivative sales were banned outright.

Regulation (EU) No 1286/2014 (PRIIPs)

Packaged retail investment products sold to retail investors require a Key Information Document carrying a summary risk indicator on a 1 to 7 scale, calculated under Delegated Regulation (EU) 2017/653. CFDs fall within scope. We have not been able to confirm that conventional exchange-traded futures do, so we do not claim it.

What European regulators have said about evaluation firms

There is no EU-level determination that a simulated evaluation account is a financial instrument, or that selling one is an investment service. Several national regulators have gone the other way and published consumer warnings.

FSMA, Belgium — 7 March 2024

Warned consumers about what it called the shadow investment game, noting that the consumer never makes any actual trades but plays on a demo account, and that the firms concerned hold no authorisation and are therefore not permitted to provide investment services.

CONSOB, Italy — 8 July 2024

Published a warning on online trading video games, expressly covering funded trading and financed trading account models.

What follows from that

If the product is not a financial instrument and the seller is not an authorised firm, then the MiFID II conduct duties, the appropriateness test, the leverage caps, negative balance protection and the PRIIPs disclosure do not attach to it. Neither, in most cases, does access to a financial ombudsman or an investor compensation scheme. That absence is the single most important fact on this page for a European reader.

Before you pay

Six things you can establish in about twenty minutes, all of them from documents the firm publishes.

Check the registration, don't assume it
Search the firm in NFA BASIC. If it is absent, it is not a CFTC registrant, and the rules in section 02 that bind registrants do not bind it.
Find out whether the funded stage is real
Some firms route funded accounts to an FCM; others keep them simulated and pay from firm revenue. These are materially different arrangements. The answer should be in writing.
Read the drawdown definition, not the headline number
Trailing from the intraday high, trailing from the closing balance, and a static floor behave very differently. So does a separate daily loss limit layered on top.
Read the payout rules before the profit split
Minimum trading days, consistency rules, maximum withdrawal per cycle and eligibility conditions determine what a percentage is actually worth.
Find the clause on changing the rules
Most agreements allow the firm to amend its terms. Look for what happens to an evaluation you have already paid for when they do.
Check the governing law and the venue
It decides which courts hear a dispute and which consumer protections you can invoke. It is frequently not your country.

Still to complete before this page is published: a plain-language summary of each covered firm's drawdown definition and payout conditions, sourced from its own terms, to sit alongside this checklist.

One sourcing note we would rather state than hide: cmegroup.com refuses automated requests, so the contract multipliers in the second chart were taken from CME's published specification text and the exchange rulebook rather than from a page we opened in a browser. They are $50 and $20 per index point and we have no doubt about them, but the two specification links in the sources below should be opened by a person once before this page goes live.

Sources

Everything above, at its source

Each citation on this page was opened and checked on October 2026. Where we could not confirm something, the page says so rather than filling the gap.

United States

Europe and the United Kingdom

Not advice

This page explains published rules and arithmetic. It does not recommend a firm, a product, a position size or a course of action, and it cannot take account of your circumstances. For advice on whether any of this is suitable for you, consult someone authorised to give it in your own jurisdiction.

Rules, contract specifications and firm terms change. Check the primary source and the firm's own documents before acting on anything here.

Affiliate disclosure

BestFuturesProp earns commissions from qualifying purchases made through some links on this website. Apex Trader Funding is our primary affiliate partner and receives prominent placement on this site.

A firm without a code or a partnership here is not a firm that pays us nothing, and a commercial relationship does not change how a firm is reviewed or where it places in a comparison. There are no affiliate links on this page.

Trading futures involves substantial risk of loss and is not suitable for every investor. Prop firm evaluations are simulated account programs; passing one is not a guarantee of funding, of a payout, or of income. Rules and prices change without notice, so check the firm's own site before you buy. Nothing here is financial advice.