Auto-Liquidation Rules in Prop Firms: How Forced Exits Actually Work
Auto-liquidation is the firm’s kill switch. When the system decides your account is unsafe — because you breached a limit, got too close to one, or entered a restricted scenario — it flattens your positions instantly. You don’t get a warning. You don’t get a countdown. The system just nukes everything on the spot.
Why Auto-Liquidation Exists
Prop firms use auto-liquidation to protect their capital. The risk desk doesn't sit around watching individual traders. Automation handles most of the enforcement.
Auto-liquidation activates when you:
- break a rule
- approach a drawdown level
- trade during restricted conditions
- lose connection during an open position
The system treats everything as a threat unless it’s explicitly allowed.
Common Triggers for Auto-Liquidation
1. Trailing Drawdown Violation
This is the most common trigger. When your trailing drawdown level is hit — even by one tick — your entire account is flattened instantly.
2. Daily Loss Limit Violation
If your realized loss hits the daily cap, the system flattens you and locks your account from further trading.
3. Max Position Size Breach
Even if the trade is profitable, exceeding the contract limit triggers an instant flatten. It works the same way as described in max position size rules.
4. News Trading Restrictions
If you open or hold trades during banned economic releases, the system may force liquidate and then flag you. Details are covered in news-trading restrictions.
5. Platform Disconnects
If your platform disconnects and the risk desk sees exposure they don’t like, they liquidate you automatically to prevent runaway losses.
6. Trade Copier Violations
If a copier triggers oversized exposure across multiple accounts, the firm may flatten all accounts instantly.
7. Cross-Market Exposure
Some firms monitor correlated assets. Too much exposure across correlated markets can trigger an automated flatten.
How Auto-Liquidation Actually Works
Prop firms use server-side risk engines that track your account in real time. These engines sit above your trading platform — meaning:
- your platform may show a position
- but the firm already closed it five seconds earlier
When the system flattens you:
- all positions close at market
- all working orders are canceled
- your account is locked until reviewed
You may not even see the flatten order until your platform syncs with the server.
Auto-Liquidation During High Volatility
This is the dangerous part. When volatility spikes:
- slippage increases
- fills become erratic
- brackets fire late
The system may flatten you early to keep you from blowing through drawdown limits.
What Happens After Auto-Liquidation?
Two things:
- Evaluation accounts: usually failed
- Funded/PAs: placed under review; may lose the account
Some firms give warnings for minor cases, but most treat it as a full violation.
How to Avoid Auto-Liquidation
- Use smaller size
- Keep a buffer above trailing drawdown
- Watch news windows closely
- Trade with a stable internet connection
- Avoid stacking orders during volatility
Auto-liquidation is predictable once you understand the triggers — it’s not random.
Final Takeaway
Auto-liquidation is the enforcement engine behind every prop firm rule. If you get too close to danger, the system will flatten you instantly. Know the triggers, manage risk properly, and stay far away from the levels that activate the kill switch.