Prop trading glossary
Every rule and fee you'll meet at a prop firm, in one plain sentence each.
1
- 1-step challenge
- A 1-step challenge is an evaluation with a single phase: hit one profit target inside the loss limits and the account is funded.
2
- 2-step challenge
- A 2-step challenge is an evaluation in two phases, with a higher profit target first and a lower one second.
A
- Activation fee
- An activation fee is a one-time payment due after you pass a challenge, to switch the account on for funded trading.
B
- Balance vs equity
- Balance is your closed funds, while equity is balance plus or minus open trades, and firms measure loss limits on one or the other.
- Buffer
- A buffer is profit a firm holds back from your payout calculation, so the amount you can withdraw is less than the profit shown.
C
- Consistency rule
- A consistency rule limits how much of your total profit may come from a single day, so one lucky trade cannot carry a whole challenge.
- Contract limit
- A contract limit caps how many futures contracts you may hold at once on a plan, whatever your balance is.
- Copy trading
- Copy trading mirrors trades from one account into another automatically, so both accounts take the same positions.
D
- Daily loss limit
- A daily loss limit caps how much you may lose in one trading day, and hitting it breaches the account even if your overall loss is still small.
E
- End-of-day drawdown
- An end-of-day drawdown moves your loss limit only once a day, using your closing balance. Touching the limit at any moment during the day still ends the account at most firms.
- Evaluation
- An evaluation is the test phase you must pass, by hitting a profit target inside the loss limits, before a firm funds you.
- Expert advisor
- An expert advisor is software that trades for you automatically, following rules you set, without you placing each order by hand.
F
- Funded account
- A funded account is the account you trade after passing an evaluation, where your profits are split with the firm and can be withdrawn.
H
- Hedging rule
- A hedging rule says whether you may hold opposite positions on the same instrument at once, long and short together.
I
- Inactivity rule
- An inactivity rule closes or deactivates an account that goes too long without a trade, so an untouched account does not last forever.
- Instant funding
- Instant funding gives you a funded account at once, with no evaluation to pass, in exchange for a higher fee.
- Intraday drawdown
- An intraday drawdown is a loss limit watched live during the day, so a dip below the floor breaches the account at once, even if price recovers minutes later.
K
- KYC
- KYC, or know your customer, is the identity check a firm runs before your first payout, to confirm you are who you claim to be.
L
M
- Maximum loss limit
- A maximum loss limit is the total amount you may lose on an account before it breaches, covering every day and every trade combined.
- Minimum payout
- A minimum payout is the smallest withdrawal a firm will process, so smaller profits stay in the account until they grow past it.
- Minimum trading days
- Minimum trading days are the number of separate days you must trade before a challenge phase can pass, even if you hit the target sooner.
N
- News trading rule
- A news trading rule limits or bans trading around major economic announcements, where prices can jump past stops in seconds.
P
- Payout frequency
- Payout frequency is how often a funded trader may request a withdrawal, from on demand to once a month.
- Profit split
- A profit split is the share of funded profits paid to the trader, with the rest kept by the firm.
- Profit target
- A profit target is the profit percentage you must reach to pass a challenge phase, measured on the starting balance of that phase.
- Prop firm
- A prop firm funds traders with its own capital after an evaluation, and shares the profits of those who pass.
R
- Refundable fee
- A refundable fee is a challenge fee the firm returns after you pass and get paid, so a successful attempt costs nothing in fees.
- Reset fee
- A reset fee is what you pay to restart a failed or breached challenge on the same account, instead of buying a new one.
S
- Scaling plan
- A scaling plan grows your funded account size as you hit profit milestones, so proven traders manage more capital over time.
- Simulated account
- A simulated account mirrors live market prices without sending your orders to a real exchange, which is how most funded accounts run.
- Static drawdown
- A static drawdown is a fixed loss floor that never moves, so your account breaches only if it falls below one set balance, no matter how high it climbs first.
T
- Trailing drawdown
- A trailing drawdown is a loss limit that rises as your account grows, so the lowest balance you may fall to moves up with your highest balance.
W
- Weekend holding
- Weekend holding is whether you may keep positions open over the weekend, when markets are closed and prices can gap on Monday.