Two traders each lose an evaluation. One is told their account is closed with a balance of $96,000 on a $100,000 starting account with a $10,000 drawdown. The other is told their account is "soft breached" and they may continue for a fee. Both headlines say "failed". They are not the same event, and the difference decides whether you have any money left to attack the problem with.
Defining the two
A hard breach is a terminal event. Equity touches the floor — the maximum drawdown level, or the daily loss limit measured intraday. The account is closed, the evaluation is over, and nothing you do afterwards matters for that account.
A soft breach (sometimes called a warning, violation, or soft breach fee) is a non-terminal violation. The firm flags a rule that was bent — most often the daily loss limit, a news window, or an overnight hold — and offers to continue the account for a fee, or takes a slice of the eventual profit, without closing it outright.
The distinction sounds procedural. It is actually structural, because the two events leave you in different states:
| Hard breach | Soft breach | |
|---|---|---|
| Account state | Closed | Continues |
| Cost | Full evaluation fee, again | A fee, or a profit haircut |
| Trader's equity | Zero (of that attempt) | Preserved or partially preserved |
| Optionality | Buy a new attempt | Keep the existing one |
Two attempts that both read "failed" in a statistics table are, in this framing, a total loss and a discounted continuation. Averaging them into one failure rate destroys exactly the information that would help a trader.
The mechanic that makes soft breaches dangerous
The trap is that a soft breach looks like a reprieve and behaves like a debt.
Suppose the daily loss limit on a $100,000 account is 5%, and you breach it by $400 — you lose $5,400 on a day whose limit was $5,000. A soft-breach rulebook may let you continue for a $150 fee. The account survives. But consider what you have just bought:
- You are now $5,400 below the day's starting equity, and that loss is real. The profit target, measured from the starting balance, has grown by $5,400.
- If the drawdown trails, your peak has not moved but your equity has — so your room to the floor is now smaller than it was.
- You have paid a fee to hold an account that is materially harder to pass than a fresh one at the same price.
In the arithmetic, a soft breach is not "get out of jail free". It is a new attempt bought at a discount, and the discount is paid for by carrying a loss that the fresh attempt does not have. If a fresh evaluation costs $500 and a soft-breach continuation costs $150, the comparison is not $150 versus $500 — it is $150-plus-a-$5,400-deficit versus $500 on a level field.
When a soft breach is genuinely worth taking
The continuation is worth it when the violation is accounting-shaped rather than equity-shaped:
- A news-window violation where the position was profitable and the loss is zero. You have a procedural mark against you but your equity curve is intact. Continuing is close to free.
- A minimum-day or hold-time violation that cost nothing in P&L. Same logic.
- A daily-loss breach on a day that closed well above the floor. Here the loss is real but small relative to the remaining room, and the fee is cheaper than a reset.
It is not worth it when the loss that triggered the breach has eaten a large fraction of the remaining drawdown. At that point you are paying to trade a smaller, harder account than the one you could buy fresh.
The decision rule
Write two numbers before you decide:
- Remaining room = current equity − current floor.
- Effective cost = continuation fee + the loss you are carrying.
If effective cost is below a fresh evaluation fee and your remaining room is at least, say, seventy percent of the original budget, continue. If the breach consumed your room, the continuation is a worse product than a reset even when its sticker price is lower.
The reason traders get this wrong is that they compare sticker prices, not states. The fresh account is often the cheaper instrument precisely because it is the only one that arrives with a full drawdown budget.
What this means for the failure statistic
If you are trying to build a real model of challenge difficulty, a single binary "passed/failed" output is the wrong data model. The correct one has at least three states — PASSED, HARD_BREACH, SOFT_BREACH — plus a cost field, because a soft breach that costs $150 on an intact curve and one that costs $150 on a drained curve are different events with the same label.
The simulator trap is identical to the one that catches drawdown models: if your state machine can only express "the account ended", you will conclude that all failures are alike and that the only lever is the underlying edge. Once you separate the states, the levers multiply — you can act on the daily-loss margin, on the news calendar, on the hold rule, and on the room-left-before-continuing decision, and each of those is a bookkeeping choice rather than a trading skill.
A challenge is not a test with a pass mark. It is a system with several distinct ways to stop, and the cheapest failure to avoid is the one you did not have to take at all. The full side-by-side of how hard and soft rules are written — and which firms punish which — is in the soft breach versus hard breach breakdown.
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