Prop Firm Terms Explained: The Complete Glossary

Most prop firm accounts are not lost to bad trading. They are lost to a rule the trader did not understand until it was applied to them. The terms below are the entire vocabulary of a challenge, in plain English, with the ones that most often end accounts marked clearly. Read it once before your first trade and you remove a whole category of avoidable failure.

The evaluation

Prop firm. A proprietary trading firm that gives traders access to its capital, or to a simulated version of it, in exchange for a share of the profits. You are assessed first, then funded.

Challenge or evaluation. The paid test you take to prove you can trade within the rules. Reach a profit target without breaching the risk limits and you pass. Details in the passing playbook.

Phase 1 and Phase 2. The two stages of a two step challenge. Phase 2 usually has a lower profit target and the same risk rules. Compared in one step vs two step.

Funded account. The account you receive after passing, on which your profits become withdrawable. Usually still simulated.

Simulated account. A demo environment trading against live prices. Your performance is real, the positions are not, and the firm pays you from its own funds.

Profit target. The gain required to pass, commonly around 8 to 10 percent of the starting balance.

Minimum trading days. The least number of days on which you must place at least one trade before you can pass, often three to five. This is why nobody passes in a single day.

Reset. Restarting a failed challenge, usually cheaper than buying a new one. Covered in what to do after failing.

Breach. Violating any rule in a way that ends the account. The word traders use for the moment it was over.

The risk rules (where accounts die)

Max drawdown. ⚠ The total the account may fall before it is failed, commonly 10 percent. The single most important number in your rulebook.

Static drawdown. A max drawdown measured from the original starting balance. The floor never moves, so profits build a genuine cushion.

Trailing drawdown. ⚠ A max drawdown measured from the account's highest point, so the floor rises as you profit. Traders lose accounts to this while still up on the month. The difference is explained in static vs trailing drawdown.

Daily loss limit. ⚠ The most you may lose in one trading day, commonly 5 percent, resetting daily. Detailed in drawdown rules explained.

Balance based vs equity based. Whether a limit counts only closed trades (balance) or includes open floating losses (equity). Equity based is stricter, because an open losing trade can breach you before you close it.

Consistency rule. ⚠ A cap on how much of your profit may come from a single day or trade, so one lucky position cannot pass you. See the consistency rule.

News trading restriction. ⚠ A ban on trading, and sometimes on holding positions, in a short window around high impact releases. See news trading rules.

Weekend holding rule. ⚠ Whether positions may be left open through the Friday close. Explained in weekend and overnight rules.

Overnight holding. Keeping a position through the daily rollover into the next session, which may be restricted and usually incurs a swap charge.

The money

Profit split. Your share of the profits, commonly 80 to 90 percent. Explained in how profit splits work.

Payout. An actual withdrawal of your share. Real money, even though the account was simulated. See your first payout.

Payout cycle. How often you may request a withdrawal, commonly every two or four weeks, sometimes on demand after a minimum period.

Refundable fee. A challenge fee returned to you, usually with your first payout, but only if you pass. Breach and it is gone. The full math is in the real cost of getting funded.

Scaling plan. A schedule for increasing your account size, and often your split, after sustained consistent performance. See scaling plans explained.

Maximum allocation. The ceiling on total capital one trader may hold across all accounts, which limits how far you can multiply accounts. See running multiple accounts.

Trading and platform terms

Lot. The unit of position size. A standard lot is 100,000 units of the base currency, a mini lot is 0.1 and a micro lot is 0.01.

Pip. The standard small increment of price movement, usually the fourth decimal place on most currency pairs.

Position sizing. Calculating lot size from your risk percentage and stop distance, so risk stays fixed. See position sizing.

Leverage. How much position size your margin permits, commonly around 1:100 on forex. A permission, not a risk level, as explained in how much leverage prop firms give.

Spread. The gap between bid and ask, effectively a cost on every trade. It widens around news and at rollover.

Slippage. The difference between your expected fill and the actual one, common in fast or thin markets.

Swap. The interest charged or credited for holding a position overnight, often tripled once a week for the weekend.

Rollover. The daily point at which swaps are applied, when spreads can widen sharply for a few minutes.

Gap. A jump in price with no trading in between, typically at the weekend open. Your stop cannot execute inside a gap.

Automation terms

Expert Advisor (EA). An automated trading program on MetaTrader that places and manages trades by programmed rules. See what a trading bot can and cannot do.

MQL4 and MQL5. The programming languages of MT4 and MT5. Different languages, so an EA built for one will not run on the other. See MT4 vs MT5.

Netting vs hedging. Whether the account allows only one net position per symbol (netting) or several opposing positions at once (hedging). It changes how multi position strategies behave.

VPS. A remote server that keeps your robot running when your own machine is off. See forex VPS.

Backtest. Running a strategy over historical data to estimate how it would have performed. Easy to make look good, which is why verifying a track record matters.

Forward test. Running a strategy on live or demo markets in real time. Slower than a backtest and far more honest.

Copy trading. Mirroring trades from one account to another. Usually allowed between your own accounts, and usually banned for trading on behalf of others.

Magic number. An identifier a robot attaches to its own trades so it can manage them without touching trades from other sources.

The bottom line

Most of the vocabulary here is ordinary trading language. The terms that actually decide your outcome are the handful marked with a warning: trailing drawdown, daily loss limit, consistency, news and weekend restrictions. Before your first trade on any new account, write those five down with your firm's exact numbers next to them. That single page prevents more failures than any strategy you could add.

Most challenges are not failed by bad trading. They are failed by a rule the trader had not read yet.

Educational content only, not financial, investment or trading advice. Definitions describe common industry usage; exact rules, thresholds and terminology vary by prop firm and broker and change frequently. Most prop-firm accounts are simulated. Always confirm the current definitions and limits in your own firm's terms before trading. No robot guarantees passing a prop firm challenge or any payout. Trading carries substantial risk of loss.