Type 2 Firm Explained

Definition

Firms with no consistency rules once funded. The evaluation may have rules, but the funded account allows aggressive trading to build buffer quickly, then conservative extraction. Strategy flexibility is much higher. Examples: TopStep, Lucid Flex.

Explanation

Type 2 firms remove consistency constraints once you reach the funded stage, giving traders maximum flexibility to implement their preferred strategies. You can take large wins without worrying about daily profit limits or consistency ratios that might apply during evaluation. This structure allows skilled traders to maximize their earning potential by building up account equity quickly through aggressive periods, then switching to conservative approaches for steady payouts.

Example

A trader passes a $100k evaluation with consistency rules, but once funded, they can take a $15k winning day without violating any daily profit limits or consistency requirements that existed during the evaluation phase.

Why It Matters

This flexibility allows experienced traders to maximize profits without being constrained by artificial consistency requirements that can limit earning potential.

Common Misconceptions

• No rules means no risk management is needed

  Reality: Drawdown limits and other core risk rules still apply - only consistency requirements are removed

• All prop firms remove consistency rules when funded

  Reality: Only Type 2 firms do this - Type 1 firms maintain the same rules from evaluation through funded trading