50+ Prop Firm Terms Every Trader Should Know

New to prop trading? The jargon can be overwhelming. Here's every important term you'll encounter, explained simply.

Challenge & Evaluation Terms

Challenge Phase (Evaluation): The testing period where you prove your trading skills before getting funded. Usually has a profit target, drawdown limit, and time constraint.

Phase 1 / Phase 2: Many firms use a two-phase evaluation. Phase 1 has a higher profit target (typically 8–10%), Phase 2 has a lower target (4–5%).

Profit Target: The minimum profit you must earn to pass a challenge phase. Expressed as a percentage of the starting account balance.

Minimum Trading Days: The number of days you must actively trade during the evaluation. Typically 5–10 days.

Verification Phase: Same as Phase 2 — confirms your Phase 1 results were skill, not luck.

Account & Funding Terms

Funded Account: An account provided by the prop firm after passing the evaluation. You trade their capital and keep a percentage of profits.

Simulated Account: An account that mirrors real market conditions but trades on a demo/paper server. Most prop firm accounts (both challenge and funded) are technically simulated.

Instant Funding: Programs that skip the challenge phase entirely. You pay a fee and receive a funded account immediately. Higher cost, easier entry.

Account Reset: Some firms allow you to reset a failed challenge (back to starting balance) for a reduced fee.

Risk Management Terms

Drawdown: The peak-to-trough decline in your account balance. See our detailed drawdown guide.

Trailing Drawdown: Maximum loss limit that moves up as your account reaches new highs.

Static Drawdown: Maximum loss limit calculated from a fixed point (usually starting balance).

Daily Loss Limit: Maximum amount you can lose in a single trading day. Typically 4–5%.

Consistency Rule: Limits how much any single day can contribute to your total profits. Not all firms enforce this.

Breach: When you violate a drawdown or loss limit, resulting in account termination.

Payout Terms

Profit Split: The percentage of profits you keep. Common splits: 70/30, 80/20, 90/10.

Scaling Plan: Program that increases your account size and/or profit split based on consistent performance.

Payout Frequency: How often you can withdraw profits — weekly, bi-weekly, or monthly.

Reset Fee: The cost to restart a failed challenge from the beginning, usually cheaper than buying a new challenge.

Trading Rule Terms

News Trading Restriction: Some firms prohibit trading during high-impact economic events.

Weekend Holding: Policy on whether positions can be held over the weekend.

Expert Advisor (EA): Automated trading software. Some firms allow EAs, others prohibit them.

Copy Trading: Copying trades from another trader's account. Often prohibited in prop firm rules.

Hedging: Opening opposing positions on the same instrument. Rules vary by firm.

Martingale: Doubling position size after losses. Almost universally prohibited.

Performance Metrics

Win Rate: Percentage of trades that are profitable. A 60% win rate means 6 out of 10 trades are winners.

Risk-Reward Ratio (R:R): The relationship between potential loss and potential gain. A 1:2 R:R means risking $100 to potentially make $200.

Profit Factor: Total gross profits divided by total gross losses. Above 1.0 means overall profitable.

Equity Curve: A chart showing your account balance over time. A smooth upward curve indicates consistent trading.

Sharpe Ratio: Risk-adjusted return metric. Higher values indicate better returns relative to risk taken.

Explore the Full Glossary

We maintain a comprehensive prop firm glossary with detailed explanations, examples, and related terms for 50+ trading concepts. Bookmark it as your reference guide.

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