Prop trading glossary

A proprietary trading firm (prop firm) charges a fee for an evaluation that is traded on a simulated account under set risk rules. A trader who meets its targets without breaking those rules can receive a share of the account's profit as a real payout, under the firm's terms.

What the trader puts at risk is the evaluation fee. Whether a prop firm needs a licence depends on the country and on how its model works, so check which entity you contract with and where it is registered in the firm's own terms.

Also known as: prop firm, proprietary trading firm, prop trading

A challenge is the skills test a prop firm uses to decide who gets a funded account. The trader pays an entry fee (one-time at most forex firms, a monthly subscription at many futures firms) and must hit a profit target without breaking the firm's risk rules.

The challenge runs in a simulated environment. Passing it unlocks a funded account, on which a share of the profit can be paid out as real money under the firm's terms.

Also known as: evaluation, assessment, audition

A 1-Phase evaluation asks the trader to reach a single profit target before funding. A 2-Phase evaluation splits the same journey into two smaller targets, which makes each individual step easier to clear.

1-Phase is the faster route. Depending on the firm it can cost more or less than 2-Phase, and it often comes with stricter risk rules, such as a lower daily limit, a trailing maximum loss or a consistency rule. Compare both versions at the same firm before choosing.

Also known as: one step, two step, 1-step, 2-step, single phase

The profit target is the percentage gain a trader must reach during an evaluation phase to advance. It is measured against the account's starting balance, not against peak equity.

Once a trader is funded there is normally no profit target left to hit. The account simply trades and withdraws on a payout cycle.

Also known as: target, profit goal

A minimum trading days rule requires a trader to be active on a set number of separate days before passing an evaluation or requesting a payout. It exists to filter out single lucky trades.

The count is days on which at least one position was opened, not calendar days elapsed. Firms often set a different minimum for evaluations than for funded payouts.

Also known as: min trading days, trading days requirement

A consistency rule caps how much of a trader's total profit may come from a single day or a single trade. It stops one oversized gamble from passing an evaluation that steady trading was meant to prove.

Firms enforce it differently. Some raise the profit target when one day dominates, some delay a payout, and some fail the account outright. Check which mechanism applies before sizing up.

Also known as: consistency, best day rule

A funded account is the account a trader receives after passing every evaluation phase. At most firms it is still a simulated account: the firm pays the trader a real-money share of the simulated profit, according to the profit split in its terms.

The risk rules usually carry over from the evaluation, but the profit target disappears. Some firms tighten requirements, for example by making stop losses mandatory.

Also known as: live funded, funded trader account

A scaling plan increases the size of a funded account after a trader shows sustained profitability over a defined review period. A larger simulated balance means a larger payout for the same percentage return.

Scaling is normally assessed on consistency across several months rather than on a single strong month.

Also known as: scaling, account growth, capital scaling

A reset returns a breached or stalled evaluation account to its starting balance so the trader can attempt the challenge again, usually for a reduced fee compared with buying a new challenge.

Also known as: retry, account reset

Drawdown is the decline in an account's value from a reference point down to its low. Prop firms turn it into a hard rule: breach the limit and the account fails immediately.

Drawdown is one of the most common reasons evaluations fail, and the exact reference point (starting balance, previous day's close, or highest equity) changes the rule completely. Always confirm which one applies.

Also known as: dd, loss limit

Daily drawdown is the most an account may fall within a single trading day before it is failed. It resets at a fixed time each day that varies by firm, for example midnight server time (often GMT+2 or GMT+3) or 5 pm New York time at many futures firms.

It is normally measured on equity, not balance, which means a large floating loss on an open position can breach the limit even though no trade has been closed.

Also known as: max daily loss, daily loss limit, daily stop

Maximum total loss is the floor an account may never fall below at any point in its life, regardless of how long it takes to get there. Touching it ends the account.

Unlike the daily limit, it does not reset. It usually applies during evaluations and on funded accounts alike.

Also known as: max total loss, overall drawdown, max loss

A static drawdown floor is fixed against the starting balance and never moves. A trailing drawdown floor follows the account's highest equity upward, so profitable trading raises the level at which the account fails.

Trailing is materially harder. A trader who gains and then gives it back can breach a trailing limit while still being up on the starting balance. Static is the more forgiving structure.

Also known as: trailing drawdown, static drawdown, trailing dd

Balance is the settled cash in an account, counting only closed trades. Equity is the balance plus or minus the profit and loss on positions still open.

This distinction decides whether a trader is breached. Most prop firms measure drawdown on equity, so an open losing position can fail an account that looks healthy on balance alone.

Also known as: floating pnl, unrealised, unrealized

A breach is any violation of a firm's trading rules. A hard breach, such as exceeding a drawdown limit, ends the account automatically. A soft breach, such as missing a minimum trading day, is usually correctable.

Knowing which category a rule falls into matters more than knowing the rule itself, because only one of them is recoverable.

Also known as: violation, rule break, blown account

A stop loss requirement obliges a trader to attach a protective exit to every position. Firms use it to cap how much a single trade can lose on the account.

It is often optional during an evaluation and mandatory on the funded account, where the firm pays out a real profit share based on the account's results.

Also known as: mandatory stop loss, sl requirement

Risk per trade is the share of account value a trader stands to lose on a single position if the stop loss is hit. Prop firms often cap it explicitly to prevent one position from approaching the daily limit.

Also known as: per-trade risk, position risk

The profit split is the proportion of trading profit the trader keeps, with the remainder retained by the firm. It usually applies to funded accounts; some firms also pay a reward on profit made during the evaluation, typically only after the trader passes.

Some firms sell an upgrade that raises the trader's share. Compare the split against the entry fee rather than in isolation, since a higher split on a costlier challenge is not automatically better value.

Also known as: profit share, split, revenue share

The payout cycle is how often a funded trader may request a withdrawal of their profit share. It is usually expressed as a minimum number of days between requests.

Two separate clocks normally apply: elapsed days since the last payout, and a minimum number of active trading days. Both must be satisfied.

Also known as: withdrawal cycle, payout frequency, payout schedule

An entry fee refund returns the trader's original challenge cost after passing. Depending on the firm it comes with the first, third or fourth payout, and some firms never refund the fee.

The refund is normally conditional on passing and reaching the payout the firm specifies. Failed evaluations are not refunded.

Also known as: fee refund, refundable fee

Simulated capital is the virtual balance of a prop-firm account: trades are executed in a simulated environment that follows market prices, rather than routed to a live exchange.

The trading environment is simulated but the payouts are real: the firm pays the profit share from its own funds, under its terms. How regulators treat this model differs by country, so check where the firm is registered and what its terms say.

Also known as: demo capital, virtual account, simulated account

An Expert Advisor is software that opens and manages trades automatically according to a coded strategy. Many prop firms prohibit them so that evaluations measure a human trader's judgement.

Where EAs are banned, firms typically detect them through timing and pattern analysis rather than by inspecting software, so near-identical execution intervals can flag an account.

Also known as: ea, bot, algo, automated trading, robot

Copy trading replicates another account's positions automatically. Prop firms restrict it because it makes an evaluation a test of the source account rather than of the applicant.

The restriction usually extends to copying between a trader's own accounts, since that would multiply a single strategy across several funded allocations.

Also known as: mirror trading, trade copier, signal copying

Martingale is a strategy that increases position size after each loss in the expectation that an eventual win recovers everything. It produces long stretches of small gains punctuated by catastrophic losses.

Prop firms ban it because its risk profile is precisely inverted from what a drawdown limit is designed to control.

Also known as: martingale strategy, doubling down

Grid trading places a ladder of orders at fixed intervals above and below a price, adding exposure as the market moves against the position. It is commonly restricted for the same reason as martingale.

Also known as: grid strategy, grid

Latency arbitrage exploits the delay between a price feed and the platform quoting it, capturing gains that come from the infrastructure rather than from a market view.

Firms treat it as an exploit rather than a strategy, because the profit is extracted from the simulation's pricing lag rather than earned from the market.

Also known as: latency trading, arbitrage, tick scalping

A news trading window is a short blackout around scheduled high-impact economic releases during which new positions may not be opened. Existing positions can normally be held through it.

The restriction targets the spread widening and slippage around a release, not news trading as a discipline. Check the economic calendar before opening near a red-flagged event.

Also known as: news restriction, high impact news, news blackout

Hedging holds offsetting positions in correlated or opposing instruments to neutralise exposure. Prop firms restrict hedging across multiple accounts, because it can lock in a guaranteed pass on one account by sacrificing another.

Also known as: hedge, opposite positions

Weekend holding is keeping positions open across the market close on Friday. Firms that forbid it force a flat book before the weekend to avoid gap risk at the Sunday open.

This varies more between firms than almost any other rule, and a forced Friday close materially changes which strategies are viable.

Also known as: weekend positions, overnight holding, swap holding

KYC is the identity check a firm performs before releasing money to a trader, typically requiring government-issued photo identification and a recent proof of address.

It is normally required before a first payout rather than at signup, so a trader can buy and complete a challenge before ever submitting documents.

Also known as: know your customer, identity verification, id check

A restricted jurisdiction is a country where a firm will not offer its services, usually because of sanctions, local financial regulation, or payment restrictions.

The list changes over time as regulation and sanctions move, so it is worth checking the current terms rather than relying on a figure quoted elsewhere.

Also known as: restricted country, blocked country, geo restriction

An inactivity policy allows a firm to suspend or close an account that has gone unused for a defined stretch of time. Placing a single trade within the window normally keeps the account in good standing.

Firms typically send several notifications before acting, and a suspended account can often be reinstated by contacting support within a grace period.

Also known as: dormant account, inactive account