Prop Firm Glossary

Prop firm rules rely on a small vocabulary, and a handful of terms decide whether an account passes, survives and pays out. The most important are the profit target, the daily loss limit, the maximum loss and whether that maximum is static or trailing. The 58 terms below are grouped by theme, from account stages to futures platforms, and each is defined in one or two sentences.

Account stages and types

• Evaluation: A paid test in which a trader must reach a profit target without breaking the firm’s loss limits and other rules. Firms also call it a challenge, a combine or an assessment.
• One step challenge: An evaluation with a single phase, so reaching one profit target is enough to qualify for a funded account.
• Two step challenge: An evaluation split into two phases, each with its own profit target, usually with a lower target in the second phase. One step vs two step challenges compares the formats.
• Verification phase: The second phase of a two step challenge, which confirms that the result from phase 1 can be repeated under the same loss limits.
• Instant funding: An account sold without an evaluation, usually at a higher price and with tighter rules such as stricter consistency requirements. See instant funding vs evaluation.
• Funded account: The account a trader receives after passing, on which profits can be withdrawn as payouts under the firm’s split and payout rules.
• Simulated funded account: A funded account that runs in a simulated environment, where the firm pays real money based on simulated results rather than routing trades to a market.
• Live account: An account trading real capital in the market. Some firms move consistent traders from a simulated funded account to a live one, as explained in simulated vs live capital.
• Performance account: A name for the funded stage of a futures evaluation. Apex Trader Funding uses the term, shortened to PA, while Topstep calls its equivalent the Express Funded Account.
• Activation fee: A one time charge some firms take after a trader passes, before the funded account is issued. Many firms sell a version of the evaluation without one at a higher price.
• Monthly evaluation: An evaluation billed as a subscription that renews every month until the trader passes or cancels, common among futures firms.
• Reset: A paid option that returns a breached or struggling evaluation to its starting balance. Some firms also sell a reactivation that restores a breached funded account, usually only before the first payout.
• Free retry: A second attempt included in the original price, often with tighter conditions attached. FundedElite offers one on its Free Retry challenges, with a 50% profit split on accounts that use it.

Targets and loss limits

• Profit target: The profit, stated in dollars or as a percentage of the starting balance, that a trader must reach to pass a phase.
• Daily loss limit: The most an account may lose in one trading day, measured from a reference point such as the previous day’s closing balance. Daily loss limit vs maximum drawdown explains the difference between the two limits.
• Maximum loss: The lowest level the account balance or equity may reach before the account is closed, also called maximum drawdown.
• Static drawdown: A maximum loss fixed at a set distance below the starting balance that never moves, so a $100,000 account with a 10% static limit always closes at $90,000.
• Trailing drawdown: A maximum loss that rises as the account makes new highs, so the floor follows the best balance or equity reached. Trailing vs static drawdown works through examples.
• Intraday trailing drawdown: A trailing limit that updates in real time and includes open profit, so a winning trade that reverses can raise the floor before it is closed.
• End of day drawdown: A trailing limit that updates only after the session closes, based on the closing balance, so open profit during the day does not move it.
• Drawdown lock: The point at which a trailing limit stops rising, often at the starting balance or the starting balance plus a small amount such as $100.
• Balance: The account value from closed trades only, ignoring any positions that are still open.
• Equity: The account value including the profit or loss on open positions, which is why an equity based limit can be hit before a trade is closed.
• Hard breach: A rule violation that closes the account permanently, such as touching the maximum loss.
• Soft breach: A violation that closes positions or pauses trading for the day without ending the account, used by some firms for daily loss limits.
• Consistency rule: A cap on how much of the total profit can come from one day or one trade, such as no single day above 40% of profit. Prop firm consistency covers how these rules are calculated.
• Minimum trading days: The number of days a trader must trade, or trade profitably, before passing a phase or requesting a payout.
• Qualifying day: A trading day that counts towards a minimum because it meets a set profit threshold, such as at least 0.5% of the starting balance or a fixed dollar amount.
• Time limit: A deadline for reaching the profit target. Many firms now have none, although an inactivity rule usually still applies.
• Inactivity rule: A requirement to trade at least once in a set period, such as every 7, 14 or 30 days, or the account is closed.
• Contract limit: The largest position a futures account may hold at once, stated in standard contracts or their micro equivalents.
• Risk per trade limit: A cap on how much of the starting balance a single trade or trade idea may risk, enforced by some firms alongside a mandatory stop loss.

Trading conduct rules

• News restriction: A rule that bars opening or closing trades within a set window around major economic releases, or requires traders to be flat at the time of the release.
• Overnight and weekend holding: Whether positions may stay open past the daily close or over the weekend. Many futures firms flatten all positions automatically before the close.
• Expert advisor: An automated trading program, usually on MetaTrader. Firms range from allowing a trader’s own EAs to banning all automation.
• Trade copier: Software that copies orders from one account to others. Some firms allow copying between a trader’s own accounts and ban copying anyone else’s trades.
• Hedging: Holding opposite positions at the same time, either in one account or across several. Firms commonly ban it across accounts because it guarantees one side passes.
• Microscalping: Trading for very small moves held for seconds. Firms police it with minimum holding times or by removing profit from very short trades.
• Martingale: Doubling the position after each loss to recover it on the next win, a method many firms prohibit because a short losing run can breach the account.

Payouts and scaling

• Profit split: The share of funded account profit paid to the trader, such as 80% or 90%, with the firm keeping the rest.
• Payout cycle: How often a trader may request a payout, such as every 14 days or after a set number of qualifying days.
• Payout cap: The most that can be withdrawn in one request, often set in dollars by account size or as a share of profit. Firms also set a minimum request size, so small profits may need to build up before they can be withdrawn.
• Payout buffer: A balance the account must stay above to request a payout, often the drawdown amount plus $100 above the starting balance, so the firm is not paying out profit that sits just above the loss limit.
• Processing fee: A charge taken from each payout by the firm or its payment provider, usually a percentage or a flat amount.
• Fee refund: The return of the evaluation fee, usually with a set payout such as the first or third, as a reward for reaching the funded stage.
• Scaling plan: Rules that increase an account’s balance or contract limits after set profit or payout milestones. Prop firm payouts covers how payouts and scaling interact.
• KYC: Know your customer checks, the identity verification many firms require before the first payout.

Futures, platforms and data

• Mini contract: The standard size stock index futures contract that prop firms count in, such as ES on the S&P 500, which is $50 times the index.
• Micro contract: A contract one tenth the size of its standard counterpart, such as MES at $5 times the S&P 500. Many futures firms count ten micros as one mini when applying contract limits.
• Tick: The smallest price step a contract can move. On S&P 500 futures a tick is 0.25 index points, worth $12.50 on ES and $1.25 on MES.
• Round turn: A complete trade, both the entry and the exit. Commissions are quoted per side or per round turn, and a round turn costs twice the per side rate.
• Market data fee: The charge for real time prices from an exchange. Futures firms either include it, charge it as an add on or pass it to the trader at the live stage.
• Level 1 and Level 2 data: Level 1 is top of book data, showing the best bid and best ask. Level 2 is depth of market data, showing several price levels on each side of the order book, which traders need to trade from a price ladder.
• Non professional status: The exchange classification for individual traders, which carries lower data fees than professional status. Traders declare their status when signing the exchange data agreement.
• Rithmic: A futures trading infrastructure provider that supplies market data and order routing, with its own R | Trader Pro platform and many compatible third party platforms.
• Tradovate: A cloud based futures platform available on the web, desktop and mobile, part of NinjaTrader Group.
• NinjaTrader: A futures trading platform for desktop, web and mobile, with charting and automation tools, connected at different firms through different data and order routing providers.
• Auto flatten time: The time each day at which a futures firm closes all open positions automatically, set before the market’s daily close.

For how these terms fit together in practice, start with what is a prop firm and how prop firm challenges work. The rules themselves are covered in more depth under prop firm rules, and more introductory reading is collected under getting started.