Glossary
Prop trading, term by term.
Every term a funded trader meets — drawdown mechanics, conduct rules, payout language — defined in plain words. The same decoded-rule knowledge behind the firm rulebooks, minus the jargon.
56 terms · updated with the rulebook.
1-step challenge
An evaluation with a single phase: one profit target, then funded.
Read the definition2-step challenge
The classic two-phase evaluation: a first target (~8–10%), a second easier one (~5%), then funded.
Read the definitionBalance (vs equity)
Closed-trade account value. Balance-based rules ignore floating P&L; equity-based rules include it.
Read the definitionBreach
Violating a hard account rule — most often a drawdown limit — which ends the evaluation or funded account.
Read the definitionChallenge (evaluation)
The paid test a prop firm uses to qualify traders: reach a profit target without breaching drawdown or the firm's rules.
Read the definitionCommission
The per-lot fee charged on execution, typically quoted per round turn (open + close).
Read the definitionConsistency rule
A cap on how much of total profit may come from a single day (or trade) — exceeding it can block passing or payouts.
Read the definitionCopy trading (restriction)
Mirroring trades between accounts or traders — usually allowed between YOUR OWN accounts, banned across different people.
Read the definitionDaily drawdown (daily loss limit)
The maximum you may lose in one trading day, commonly 4–5%, resetting at a fixed server time.
Read the definitionDrawdown
The decline from an account's reference level (starting balance or equity peak) — the loss budget a prop trader must never exhaust.
Read the definitionEA (Expert Advisor)
Automated trading code on MetaTrader — allowed at many firms, but copy-EAs and exploit-EAs are banned nearly everywhere.
Read the definitionEnd-of-day (EOD) trailing drawdown
A trailing drawdown recalculated only at the daily close, ignoring intraday equity peaks.
Read the definitionEquity
Account value including open positions: balance + floating P&L.
Read the definitionFunded account
The account a trader manages after passing the evaluation, trading the firm's capital for a profit share.
Read the definitionFunded trader program
Umbrella term for the evaluation-to-funded pipeline retail prop firms sell.
Read the definitionGambling / all-in rule
A conduct clause banning bet-the-account behaviour: max-size punts, martingale, one-shot passes.
Read the definitionGap risk
The risk of price opening far from the previous close — weekends and session opens — jumping over stops entirely.
Read the definitionHard breach vs soft breach
Hard breach = account terminated (drawdown limits). Soft breach = trades closed or payout affected, account survives.
Read the definitionHedging (restriction)
Holding offsetting positions — same-account hedging is often allowed; cross-account or cross-firm hedging is banned.
Read the definitionHFT (high-frequency trading)
Sub-second, high-volume order strategies — banned at virtually every retail prop firm.
Read the definitionInactivity rule
Accounts are closed or archived after a period without trading — commonly 14–30 days.
Read the definitionInstant funding
A funded account bought outright — no evaluation phase, higher fee, usually staged payouts.
Read the definitionKYC (Know Your Customer)
Identity verification (ID + proof of address) required before payouts — the moment aliases and shared accounts die.
Read the definitionLatency arbitrage
Exploiting a delayed price feed by trading against a faster one — universally banned and payout-voiding.
Read the definitionLeverage
Buying power relative to account size (e.g. 1:100). It scales position capacity, not your risk budget.
Read the definitionLot (standard, mini, micro)
Forex position size units: standard = 100,000 base currency, mini = 10,000, micro = 1,000.
Read the definitionMandatory stop-loss rule
A requirement that every position carries a stop-loss, sometimes within seconds of entry.
Read the definitionMargin
The collateral reserved to hold a position, set by leverage and size.
Read the definitionMartingale
Doubling position size after losses to recover — treated as gambling and banned or restricted by many firms.
Read the definitionMax allocation
The cap on total funded capital one trader may manage at a firm, across all accounts.
Read the definitionMax drawdown
The total loss limit for the life of the account, typically 8–12% of starting size.
Read the definitionMax risk per trade / max lot rule
A cap on position size or open risk per trade, absolute (lots) or relative (% of account).
Read the definitionMetaTrader (MT4/MT5)
The dominant retail forex platforms; MT5 is the modern multi-asset version most prop firms now offer.
Read the definitionMinimum trade duration
A floor on how long a position must stay open (e.g. 60 seconds+) — an anti-tick-scalping rule at some firms.
Read the definitionMinimum trading days
The fewest distinct days you must place trades before passing a phase or requesting a payout.
Read the definitionMulti-accounting / IP rule
Restrictions on operating many accounts or sharing access: one person per account, caps per person, no account management.
Read the definitionNews trading (restriction)
Rules limiting opening/holding positions around high-impact economic releases (NFP, CPI, FOMC).
Read the definitionOvernight holding
Keeping positions open past the daily session close — restricted mainly at futures firms.
Read the definitionPayout cycle
How often a funded trader can withdraw profit — weekly, bi-weekly, monthly, or on-demand.
Read the definitionPip
The standard price increment in forex: 0.0001 for most pairs, 0.01 for JPY pairs.
Read the definitionPosition sizing
Choosing trade size from risk: lots = (account × risk%) ÷ (stop distance × pip value).
Read the definitionProfit split
The percentage of profits the trader keeps from a funded account — commonly 80–90%, sometimes scaling to 100%.
Read the definitionProfit target
The percentage gain required to pass an evaluation phase — commonly 8–10% for phase one, ~5% for phase two.
Read the definitionProhibited strategies
The firm's list of banned approaches: exploits (latency/tick), copy services, gambling patterns, cross-account hedging.
Read the definitionProp firm (proprietary trading firm)
A company that gives traders access to its own capital in exchange for a share of the profits, usually after a paid evaluation.
Read the definitionRefundable fee
An evaluation fee returned (usually with the first payout) once you're funded and paid.
Read the definitionReset (challenge reset)
Paying to restart a failed or in-progress evaluation, often at a discount, keeping the same program.
Read the definitionScaling plan
A firm's program for growing a funded account (or split) after consistent profitable periods.
Read the definitionSim-funded
A 'funded' account that runs on simulated execution: real payouts, demo fills.
Read the definitionSlippage
The gap between your intended price and the actual fill — largest around news spikes and market opens.
Read the definitionSpread
The difference between bid and ask — the built-in cost of every round trip.
Read the definitionStatic drawdown
A fixed loss floor measured from the starting balance — profit does not move it.
Read the definitionSwap (overnight fee)
The financing cost or credit applied to positions held overnight, from the interest differential of the pair.
Read the definitionTrailing drawdown
A loss limit that follows your equity peak upward: profit raises the floor beneath you.
Read the definitionVerification (phase 2)
The second, easier stage of a 2-step evaluation — typically half the phase-one target under the same risk rules.
Read the definitionWeekend holding
Keeping positions open over the weekend — forbidden by many firms, essential for swing traders.
Read the definition