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Prop Firm Glossary

47 terms covering prop firm trading, risk management, evaluation rules, and payout structures — explained in plain English.

Account Types (7)General (13)Payout Terms (6)Risk Management (8)Trading Concepts (2)Trading Rules (11)

Account Types

Challenge Phase

The evaluation period where a trader must meet specific profit targets and follow risk rules to qualify for a funded account.

A simulated trading account provided by a prop firm after passing their evaluation, where you trade with the firm's capital.

Instant Funding

A prop firm program where traders receive a funded account immediately without passing an evaluation challenge.

One-Step Challenge

A single-phase evaluation where traders must hit one profit target while respecting risk rules to get funded.

Simulated Account

A demo trading environment that mirrors live market conditions, used by modern prop firms for both evaluations and funded accounts.

Two-Step Challenge

A two-phase evaluation with separate profit targets in each phase, requiring consistent performance to earn funding.

Verification Phase

The second phase of a two-step challenge, designed to confirm that Phase 1 results were based on skill, not luck.

General

A fee charged per trade by the broker or platform for executing orders.

A graphical representation of an account's value over time, showing the cumulative impact of all trades.

The ability to control a large position with a relatively small amount of capital, amplifying both potential profits and losses.

A standardized unit of trade size in forex. One standard lot equals 100,000 units of the base currency.

The collateral required to open and maintain a leveraged trading position.

The smallest standard price increment in forex trading, typically the fourth decimal place (0.0001) for most currency pairs.

The ratio of gross profits to gross losses. A profit factor above 1.0 means the strategy is profitable overall.

Prop Firm (Proprietary Trading Firm)

A company that provides traders with capital to trade financial markets in exchange for a share of profits.

Prop Firm Comparison

The process of evaluating and comparing different prop firms based on rules, fees, payouts, and features to find the best fit.

The difference between the expected price of a trade and the actual price at which it is executed.

The difference between the bid (sell) and ask (buy) price of an instrument — a built-in cost on every trade.

Trading Session

Distinct time periods during the trading day when different global financial centers are active, affecting liquidity and volatility.

The percentage of trades that are profitable out of total trades taken.

Payout Terms

Combining multiple funded accounts into a single larger account, offered by some prop firms as a reward for consistent performance.

Payout Frequency

How often a prop firm processes profit withdrawals for funded traders.

The available options for withdrawing profits from a funded prop trading account.

The percentage of trading profits that the trader keeps versus what the prop firm retains.

A discounted fee to restart a failed evaluation from the beginning instead of purchasing a brand new challenge.

A program that allows successful funded traders to increase their account size and improve their profit split over time.

Risk Management

Daily Loss Limit

The maximum amount you can lose in a single trading day before the account is breached or frozen.

The maximum allowed decline from peak equity in a trading account.

Drawdown Recovery

The process and percentage gain required to recover from a loss and return to a previous equity high.

Equity vs Balance

Balance is the cash total of closed trades, while equity includes unrealized gains or losses from open positions.

Position Sizing

Determining how many contracts or lots to trade based on account size, risk tolerance, and stop loss distance.

Risk-Reward Ratio

The ratio between potential loss and potential gain on a trade, used to evaluate whether a trade is worth taking.

An order that automatically closes a position at a predetermined price to limit potential losses.

Trailing Drawdown

A drawdown limit that moves up as your account reaches new highs, but never moves back down.

Trading Concepts

Moving your stop loss to your entry price after a trade moves in your favor, eliminating risk on the position.

Gradually entering or exiting a position in multiple parts rather than all at once.

Trading Rules

Breach (Account Violation)

When a trader violates one or more of a prop firm's rules, resulting in the account being closed or suspended.

Consistency Rule

A requirement that no single trading day accounts for more than a set percentage of total profits.

Replicating trades from one account to another, either manually or automatically. Most prop firms prohibit this.

Expert Advisor (EA)

An automated trading program or bot that executes trades based on pre-programmed rules, commonly used in MetaTrader.

Opening opposing positions on the same or correlated instruments to offset risk. Some prop firms restrict this practice.

A position sizing strategy that doubles trade size after each loss, attempting to recover all losses on the next win. Banned by most prop firms.

Maximum Position Size

The maximum number of contracts or lots a trader can hold at any given time, set by the prop firm.

Minimum Trading Days

The minimum number of days you must actively trade before passing an evaluation or requesting a payout.

Trading during high-impact economic news releases, which some prop firms restrict or prohibit.

The minimum percentage or dollar gain required to pass a prop firm evaluation or trigger a payout.

Weekend Holding

Whether a prop firm allows traders to keep open positions over the weekend when markets are closed.

Track Your Prop Firm Journey

Put these concepts into practice. Track trades, monitor drawdown, and grow your funded accounts.