Prop Trading Glossary: Complete A-Z Terms
Dr. Algo
Prop Mindset & Discipline Expert
Comprehensive A-Z glossary of prop trading terms, challenge rules, risk metrics, and industry jargon — the definitive reference for funded and aspiring funded traders.
Prop Trading Glossary: Complete A-Z Terms
Whether you are evaluating your first challenge or managing a six-account stack, knowing the precise meaning of every term in a prop firm's documentation is essential. At Ask Propfirm, this glossary is the companion resource to our full forex prop firms directory and futures directory. Misunderstanding a single rule can result in account breach or payout denial. This glossary covers every significant term in prop trading.
A
Account Breach / Account Violation When a trader breaks any of the firm's hard rules — typically by exceeding the maximum daily drawdown, total drawdown, or breaking a trading restriction. Results in account termination.
Audition SurgeTrader's term for their single-phase evaluation. Equivalent to the "challenge" at other firms.
Averaging Down Adding to a losing position to reduce the average entry price. Many prop firms restrict or prohibit this strategy. High risk in drawdown-limited accounts.
B
Balance-Based Trailing Drawdown A trailing drawdown that only moves when a trade is closed and profit is booked. Open trade equity does not move the floor. More trader-friendly than equity-based trailing.
Bootcamp (The 5%ers) The entry-level evaluation product from The 5%ers, offering lower capital with progressive scaling access.
Breakeven Stop Moving a stop loss to the entry price once a trade is in profit, eliminating downside risk on that position.
C
Capital Allocation The total funded trading capital the firm grants to a trader after passing evaluation.
Challenge The evaluation phase where a trader demonstrates risk-adjusted performance to qualify for a funded account. May have one or two phases.
Challenge Fee The upfront cost to access the evaluation. May be refundable on first successful payout (FTMO model).
Combine (Topstep) Topstep's term for their futures evaluation program. Equivalent to a "challenge" at forex firms.
Consistency Rule A policy restricting the maximum percentage of total net profit that can come from any single trading day. Typically 30–50% of total net P&L.
Contract Size The standardized unit of a futures contract (e.g., one ES contract = $50 × S&P 500 index level).
Copy Trading Mirroring the trades of another trader automatically. Rules on whether copy trading is permitted vary by firm.
D
Daily Drawdown Limit The maximum loss permitted in a single trading day (based on the calendar day in most cases). Breach results in account suspension or termination.
Daily Loss Limit Synonym for Daily Drawdown Limit.
Demo Account A simulated trading environment where no real money changes hands. Many firms provide demo access to practice before the challenge.
Drawdown The peak-to-trough decline in account value over a specified period.
DXTrade A web-based trading platform used by several newer prop firms as an alternative to MetaTrader.
E
Equity The current value of a trading account including unrealized P&L from open positions.
Equity-Based Trailing Drawdown A trailing drawdown that follows the live equity peak, including open trade floating profit. The most restrictive form of trailing drawdown.
EA (Expert Advisor) An automated trading program running on MetaTrader platforms. Whether EAs are permitted varies by firm.
Evaluation Phase The testing period during which a trader must demonstrate performance meeting the firm's criteria. Also called "challenge," "combine," or "audition."
Expected Value (EV) The statistical average outcome of a trade or strategy: EV = (Win Rate × Avg Win) − (Loss Rate × Avg Loss).
F
Fixed Drawdown See "Static Drawdown." The maximum loss threshold is calculated from the starting balance and does not change.
Floating P&L The unrealized profit or loss on open positions. Whether this counts toward drawdown calculations depends on firm rules.
Funded Account The live trading account provided after passing the evaluation. The trader trades this account on the firm's behalf.
Funded Trader A trader who has passed evaluation and is actively trading a firm-funded account.
G
Gauntlet (Earn2Trade) Earn2Trade (earn2trade.com)'s evaluation product. Available in "Gauntlet" (monthly) and "Gauntlet Mini" formats.
Grid Trading A strategy placing buy and sell orders at regular intervals around a current price level. Often prohibited by prop firms due to the potential for large floating losses.
H
Hard Rule A rule where breach results in immediate, automatic account termination. Opposite of a "soft rule" which may result in a warning first.
Hedging Opening a position in the opposite direction of an existing position, often on the same instrument. Some firms prohibit hedging; others permit it.
High-Water Mark The highest balance level reached by a trading account. Used in trailing drawdown calculations.
I
Initial Balance The starting balance of a challenge or funded account. The reference point for static drawdown calculations.
L
Leverage The ratio of total position value to account equity. A $100K account with 1:100 leverage can control up to $10 million in market exposure.
Lot The standard unit of size in forex trading. One standard lot = 100,000 units of the base currency.
M
Mark-to-Market The practice of valuing open positions at their current market price. In trading taxation, a special election (Section 475) allowing traders to treat all positions as sold at year-end.
Maximum Drawdown The total allowable drawdown from the starting balance (or high-water mark for trailing models). Breach terminates the account.
Micro Lot 0.01 standard lots = 1,000 units of the base currency. Used for tight position sizing on smaller accounts.
Minimum Trading Days The minimum number of calendar days a trader must have active trades to qualify as having completed the challenge. Prevents single-session hits.
MT4 / MT5 MetaTrader 4 and MetaTrader 5 — the most widely used trading platforms in forex/CFD prop trading.
N
News Trading Restriction A rule prohibiting trades within a defined time window around high-impact economic news releases. Common at FTMO (ftmo.com) (2-minute window) and Funded Engineer.
Net P&L Total profit minus total losses. The basis for profit split calculations at most firms.
O
One-Step Challenge An evaluation with only a single phase before funded account access. Faster but often has higher fees or tighter rules than two-phase models.
Overtrading Placing trades beyond what the strategy calls for, usually driven by impatience or emotional reaction to P&L. A leading cause of challenge failure.
P
Phase 1 / Phase 2 The two sequential stages of a two-phase evaluation. Phase 1 typically requires a 10% profit target; Phase 2 requires a 5% profit target with ongoing adherence to drawdown rules.
Pip The minimum price increment in forex trading. For most pairs, 1 pip = 0.0001 of the quoted price.
Position Size The number of lots, contracts, or units traded in a single position.
Profit Split The percentage of net trading profits paid to the trader versus retained by the firm.
Profit Target The minimum required net gain to pass a challenge phase or qualify for a payout cycle.
Prop Firm Proprietary trading firm — a company that provides capital to traders in exchange for a share of the trading profits.
R
Reset Restarting an evaluation account after a breach or poor performance, typically for a reduced fee compared to the full challenge cost.
Risk-to-Reward Ratio (R:R) The ratio of potential loss (1R = risk) to potential gain. A 1:2 R:R means targeting $200 profit while risking $100.
Rithmic Order routing infrastructure used by many futures prop firm platforms. Not itself a trading interface, but powers platforms like R|Trader, Quantower, and Sierra Chart.
S
Scaling Plan A structured program within a prop firm allowing traders to qualify for increased capital allocation based on consistent profitable performance.
Slippage The difference between the expected fill price and the actual fill price. Common during high-impact news events.
Soft Rule A guideline that may result in a warning rather than immediate termination. Less common than hard rules in prop firm contexts.
Static Drawdown A drawdown limit calculated from the initial account balance that never moves regardless of profits earned. More forgiving than trailing drawdown.
Stop Loss A pending order that automatically closes a position at a specified adverse price, limiting the maximum loss on that trade.
T
Tick The minimum price movement for a futures contract. Tick value varies by contract (ES = $12.50/tick, NQ = $5/tick).
Trailing Drawdown A drawdown limit that follows the account's highest balance, tightening as profits grow. See also: balance-based trailing and equity-based trailing.
Two-Step Challenge The standard evaluation model requiring a trader to pass two phases of performance criteria before receiving a funded account.
U–Z
Unrealized P&L Floating profit or loss on open positions that have not been closed.
Violation See "Account Breach."
Win Rate The percentage of trades that close in profit. Formula: (Winning Trades / Total Trades) × 100.
Withdrawal / Payout The process of requesting and receiving your share of trading profits from a funded account.
Weekend Holding Ban A rule prohibiting open positions from being held over the Friday close (weekend). Firms with this rule require all positions to be closed before the market closes on Friday.
This glossary covers the core vocabulary of prop trading. If a term you encounter in a firm's rule document is not in this list, contact the firm's support for clarification before starting your evaluation — ambiguity in rule interpretation almost always disadvantages the trader. For firm-specific rule breakdowns, see Ask Propfirm or our forex prop firms directory.