Prop Trading Glossary
Master the terminology of proprietary trading and funded accounts
Key Prop Trading Terms
Prop Firm
A proprietary trading firm that provides traders with capital to trade in exchange for a share of profits.
Funded Account
A trading account with capital provided by a prop firm after passing their evaluation process.
Drawdown
The peak-to-trough decline in account equity, used as a risk management metric in challenges.
A
Account Scaling
The process of increasing your funded account size based on consistent profitable performance.
Allocation
The amount of capital assigned to a trader by a prop firm after passing evaluation.
B
Balance-Based Drawdown
Drawdown calculated from the initial account balance, commonly used in prop firm challenges.
Bi-weekly Payout
Payment schedule where traders can request profit withdrawals every two weeks.
C
Challenge
An evaluation period where traders must meet specific targets to receive funding.
Consistency Rule
Requirement that no single trading day's profit exceeds a certain percentage of total profits.
D
Daily Drawdown
Maximum loss allowed in a single trading day, typically 5% in prop firm challenges.
Demo Account
Simulated trading environment used during evaluation phases before live funding.
E
Evaluation
The testing phase where traders prove their skills before receiving a funded account.
Equity-Based Drawdown
Drawdown calculated from the highest point of account equity including open positions.
F
Funded Trader
A trader who has passed evaluation and trades with prop firm capital.
Free Retry
Option to retake a challenge at no additional cost after failing the first attempt.
M
Maximum Drawdown
The maximum loss allowed from the initial balance, typically 10% in challenges.
Minimum Trading Days
Required number of days with trading activity to complete a challenge phase.
P
Profit Split
The percentage of profits kept by the trader, typically 80-90% in prop firms.
Profit Target
The percentage gain required to pass each evaluation phase.
Payout
The withdrawal of earned profits from your funded trading account.
Phase
A stage in the evaluation process with specific targets and rules.
R
Refundable Fee
Challenge fee that is returned to traders upon receiving their first profit payout.
Risk Management
Trading practices that protect capital and stay within drawdown limits.
S
Scaling Plan
Program to increase account size based on consistent profitable performance.
Simulated Trading
Trading in a demo environment that mirrors real market conditions.
T
Two-Step Challenge
Evaluation process with two phases before receiving a funded account.
Trailing Drawdown
Drawdown that moves up with profits but never moves down.
V
Verification Phase
The second phase of a two-step challenge with lower profit targets.
Virtual Capital
Simulated funds used in prop firm accounts that mirror real trading conditions.
Quick Reference Guide
Common Metrics
- Profit Target 8-10%
- Max Drawdown 10%
- Daily Loss Limit 5%
- Profit Split 80-90%
Challenge Types
- Instant: No evaluation
- One-Step: Single phase
- Two-Step: Challenge + Verification
- Custom: Tailored terms
Key Concepts
- • Simulated trading environment
- • Performance-based funding
- • Risk management focus
- • Scaling opportunities