Prop Trading Glossary

The firm's termination of a trader's account for a rule violation — usually immediate, usually with forfeiture of any in-progress profits.

A separate fee some firms charge to activate the funded account after the evaluation is passed — an extra cost on top of the challenge fee.

The average number of business days from a trader's withdrawal request to the money arriving in their account — a core reliability metric for any firm.

A drawdown calculated from closed-trade balance only — open positions and unrealized PnL don't count toward the limit.

The upfront cost a trader pays to attempt a prop firm evaluation — the firm's primary revenue source.

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

Automatically mirroring another trader's positions in real time — typically banned on prop firm evaluations due to correlated risk.

A per-day loss limit that caps how much an account can lose in a single trading day, separate from the overall max drawdown.

A rare model where the firm provides capital without any evaluation or upfront fee — usually reserved for verified professional traders with track records.

What happens after a drawdown breach — typically account closure, though some firms offer a paid reset option.

A rule that prohibits or limits automated trading on a prop firm account, often banning specific strategy types like arbitrage, HFT, or grid systems.

Automated trading using scripts or bots — 'Expert Advisors' in MetaTrader terminology — that place and manage trades without manual input.

A trailing drawdown that only moves up at the end of the trading day, not tick-by-tick during the session.

A drawdown calculated from real-time account equity — open positions and unrealized losses count toward the limit tick-by-tick.

The paid skills test a trader must pass to earn a funded account — typically one, two, or three phases with profit targets and drawdown rules.

Whether the challenge fee is refunded on the trader's first payout — a feature that meaningfully changes the effective cost of the challenge.

The unrealized profit or loss on open positions — tracked live, affects equity-based drawdowns, ignored by balance-based drawdowns.

The trading account granted after passing the evaluation — almost always simulated, with real profit splits and real payouts.

A strategy that opens positions at preset price levels, adding to losers as price moves against you. Banned by most prop firms.

A rule violation that results in immediate and permanent account closure, typically with forfeiture of all unpaid profits and the challenge fee.

Holding opposing positions to offset exposure — allowed within one account, but banned across multiple accounts or firms.

The peak balance used as the reference point for a trailing drawdown — once hit, it locks in and never moves down.

A rule that closes a funded account after a period of no trading activity — typically 14 to 30 days — even if the account is otherwise in good standing.

A funded account model with no evaluation — the trader pays a fee and begins trading under live rules immediately, skipping the challenge phases.

The drawdown limit calculated tick-by-tick during the trading session — distinct from end-of-day drawdown, which only updates at daily close.

The identity check required before your first payout — government ID plus proof of address. A common source of payout delays.

The multiplier that lets a trader control a larger position than their deposited capital — 1:100 leverage means $1,000 can control a $100,000 position.

The counterparty filling your orders — a bank, hedge fund, or in many prop firm cases, the firm itself on a simulated book.

The standard unit of position size in forex trading — 1 standard lot equals 100,000 units of the base currency.

A cap on the maximum position size a trader can open at once, or across all open positions combined.

The capital the firm holds as collateral for a leveraged position — released when the position closes, consumed if the position loses enough.

A position-sizing strategy where the trader doubles the size after every loss — banned on virtually every prop firm account.

The overall account loss cap — the total amount an account can drop before the firm closes it.

The smallest withdrawal amount a firm will process — profits below this threshold stay in the account until accumulated enough to request.

Trading around scheduled high-impact economic events — NFP, FOMC, CPI — where volatility and spread widening spike.

A rule blocking or penalizing trades placed within a set window around scheduled high-impact news — typically 2 to 5 minutes before and after release.

A single-phase evaluation with one profit target — pass once and the account is funded, with no phase 2.

A fee model with no upfront cost — the challenge fee is deducted from your first funded payout, so only passing traders pay.

A minimum profit amount — separate from the payout threshold — that a trader must accumulate before the first payout becomes available on a funded account.

How often a funded trader can request withdrawal of their profit split — on-demand, weekly, bi-weekly, or monthly.

Screenshot- or transaction-verified records of payouts traders have received — the informal trust signal traders use to vet firms.

The standard unit of price movement in forex — typically 0.0001 of a currency pair's price, or 0.01 for JPY pairs.

The percentage of trading profits a funded trader keeps, with the remainder going to the prop firm.

The percentage gain a trader must hit to pass a challenge phase — typically 6-10% in phase 1 and 4-5% in phase 2.

A company that provides trading capital to retail traders who pass an evaluation, splitting profits between the trader and the firm.

Retail prop firms are mostly unregulated — they are not brokers, not registered with FCA/CFTC/SEC, and carry no investor-protection scheme.

A funded account where the firm routes at least some of the trader's flow to live markets — a rarer and more trust-signaling model than the standard simulated funded account.

The fee charged to restart a challenge after a drawdown breach — usually 30-50% of the original challenge fee.

The ratio of expected profit to risked loss on a single trade — a 1:2 risk-reward means the trader risks $1 to make $2.

Any breach of the firm's trading rules — separate from drawdown breaches — that can trigger an account ban and profit forfeiture.

A structured path that increases the trader's account size after hitting performance milestones — more capital, often with improved profit splits.

Very short-duration trading — seconds to a few minutes per position — aimed at capturing small price movements repeatedly.

A funded account where the firm holds the trader's positions on a simulated book — the standard model in retail prop, with implications for payout reliability.

The difference between the price a trader expected at order entry and the price the trade actually filled at — usually worse than expected in fast markets.

A rule violation that triggers a warning, profit adjustment, or reset offer — but leaves the account intact and able to continue trading.

The price difference between the best bid and best ask — the implicit cost of opening and closing a position, quoted in pips.

A fixed maximum loss limit calculated from your starting account balance, not your peak balance.

An evaluation with three sequential phases, adding a verification step on top of the standard two-step model — rarer and typically cheaper.

A drawdown limit that moves up as your account balance increases, but never moves down.

The most common evaluation model — two phases, each with its own profit target, usually 8% in phase 1 and 4-5% in phase 2.

Keeping open positions through the Friday market close and over the weekend, when most markets are closed but exposure continues.

The ~5-minute window around the 5 PM EST futures rollover when spreads dramatically widen across forex and futures — a silent source of drawdown breaches that happens every single trading day.