Prop Firm Glossary: The Terms, Explained Plainly
Prop trading runs on jargon that hides simple mechanics. This is the vocabulary worth knowing, defined in the terms a firm's own documents use, with links to the pages that work through each one in detail.
Account and structure
Prop firm (proprietary trading firm)
A company that gives a trader a rules-bound account and shares the profit. In the retail segment this almost always means an evaluation model rather than employment. Full explanation in what is a prop firm.
Evaluation / challenge / assessment
The paid test you must pass to receive a funded account. The three words mean the same thing; firms rotate them for marketing reasons. A "challenge" implies difficulty, an "assessment" implies selection.
Phase
One stage of a multi-stage evaluation. A two-step has a Challenge phase and a Verification phase, each with its own target and minimum trading-day requirement.
Funded account / live account
The account you receive after passing, where profit becomes withdrawable. Note that "funded" does not mean the balance is yours, and does not mean the rules disappear — funded terms are often stricter.
Instant funding
A product with no evaluation: you are funded on purchase. The filter it removes is replaced with tighter drawdown and payout conditions. See instant funding vs a challenge.
A-book / B-book
Where your orders actually go. A-book means orders are passed to a live market; B-book means the firm takes the other side internally. Most retail prop accounts are simulated, meaning your orders do not reach a market at all. This distinction affects how payouts are funded and how the arrangement may be characterised for tax.
Risk rules
Maximum drawdown / maximum loss
The total amount the account may fall below its starting point across the whole evaluation. It does not reset. Explained with worked numbers in drawdown types.
Daily drawdown / daily loss limit
The amount the account may lose within one trading day. It resets at a defined point, usually the platform's server midnight. This is the tighter of the two limits and the one that fails most accounts.
Static (fixed) drawdown
A maximum drawdown whose floor never moves. Your buffer grows as you profit, making static accounts materially more forgiving.
Trailing drawdown
A maximum drawdown whose floor follows your peak upward. The distance between your equity and the failure line stays roughly constant rather than widening, and unrealised profit can move the line.
End-of-day (EOD) drawdown
A limit measured on your closing balance or equity. Intraday swings do not count unless you close the day there.
Intraday drawdown
A limit measured live. At no point during the session may equity touch the level, even momentarily. The difference between this and EOD decides whether a wick is fatal.
Equity vs balance
Balance is closed profit and loss. Equity includes open positions, commissions and swaps. Whether a firm measures a limit on one or the other is one of the most consequential details in its ruleset.
Floating loss / unrealised P&L
The current profit or loss on open positions. At most firms it counts against the daily limit from the first tick, meaning an open loser is already a real loser against your room.
Consistency rule
A cap on how much of your total profit may come from a single day — commonly 20%, 30% or 40%. It can make a challenge unfinishable without extra profit. See the consistency rule explained.
Best day rule
FTMO's version of a consistency requirement. It is a trading objective — a pass condition — not merely a payout condition, and it requires the best day to be no more than 50% of positive days' profit on the products that carry it. See FTMO rules explained.
Minimum trading days
A requirement to be active on a stated number of separate days before an evaluation can be passed. It sets a hard floor on how fast a pass is possible. See minimum trading days.
Inactivity clause
A rule that closes or suspends an account if you do not trade for a stated period — typically 7 to 30 days. Separate from a time limit. See the inactivity rule.
Profit target
The profit required to pass. It is a percentage of the account size, so it scales with the account.
Money
Profit split
Your share of generated profit, written from the trader's perspective: an 80/20 split means you keep 80%. See profit splits and scaling.
Payout / withdrawal
The transfer of your share to you. Eligibility is when you may request it; processing is how long the transfer takes. See payout timing.
Payout cycle
How often withdrawals are permitted: on-demand, fixed dates, or monthly. It matters more to your income than the split percentage does.
Buffer / minimum balance
An amount that must remain in the account after a withdrawal. It directly reduces what you can take out.
Scaling plan
A structure that increases your account size as you demonstrate consistent profitability, usually with a cap and a no-breach condition.
Challenge fee / reset fee
The cost of the evaluation, and the discounted cost of restarting one. The relevant figure is the fee multiplied by attempts, not the fee. See costs and refunds.
Reset / reseed
Restarting a failed evaluation, typically at a discount. It restores balance and limits but not accumulated trading days. See reset vs new challenge.
KYC (know your customer)
Identity verification, normally required before the first payout. Required by the payment providers firms use, not optional. Mismatched or expired documents are a common cause of payout delays.
Trading conduct
EA (expert advisor)
Automated trading software on MT4/MT5. Widely permitted, subject to a prohibited-techniques list. See EA and copy trading rules.
HFT (high-frequency trading)
Very large numbers of orders, often held for seconds. Banned almost everywhere, because it exploits feed latency rather than market direction.
Latency arbitrage
Profiting from a stale price on the firm's feed versus the real market. A guaranteed extraction from the firm's infrastructure, and universally prohibited.
Tick scalping
Scalping a few ticks with large size, repeatedly. Treated as HFT in most firm rulesets.
Copy trading
Mirroring trades between accounts. Copying your own accounts is firm-specific; copying a third party's trades is prohibited almost everywhere.
Third-party trading
Someone other than the account holder placing trades. A separate clause from the automation rules, and prohibited at many firms outright.
Hedging
Holding opposite positions in two accounts you control. Treated as fraud rather than a strategy, because one account must win. See multiple accounts.
News window / T-2 rule
A period around a scheduled high-impact release during which positions must be flat or no new positions may be opened. Commonly expressed as "flat two minutes before the event". See news trading rules.
Slippage
The difference between the price you expected and the price your order filled at. It affects tight-stop strategies more, and it is not a rule — it is a market condition. Spread widening around news and the daily rollover is the most common cause of surprise stop-outs, which is covered in stop loss rules.
Swap / rollover
The financing charge or credit for holding a position overnight. It counts as part of equity against your limits at most firms, which matters for multi-day positions.
Practical terms
Aggregate exposure
Your total market risk across all open positions, counting correlated instruments together. Two correlated positions are one bet with two tickets.
Contract limit
A hard cap on contracts or lots per account. On futures accounts it is usually the binding constraint on position size — more binding than leverage.
Eligibility period
The waiting time after becoming funded before you may request a payout. The delay most traders forget to count when comparing firms.
Solvency risk
The risk that a firm cannot or will not pay. It is why diversifying across firms is rational and why verifying an entity before buying matters more than any rule comparison.
Where to go next
- Choosing a firm: the criteria that decide outcomes
- What to verify before paying: the pre-purchase checklist
- Sizing correctly: risk management on a prop account
- Why accounts fail: the five failure modes
- Direct answers to common questions: the prop firm FAQ
- Choosing an account size: account sizes explained
Frequently asked questions
What does "funded trader" actually mean?
It means you trade an account under the firm's rules and receive a share of the profit. It does not mean the balance is yours, that you have employment, or that the drawdown rules no longer apply.
Is "drawdown" the same as "loss limit"?
In practice yes — firms use both for the same rules. The meaningful distinctions are daily versus maximum, static versus trailing, and balance versus equity.
What is the difference between a reset and a retry?
Usually nothing more than branding. Both restart an evaluation, though "free retry" and "second chance" often carry eligibility conditions a paid reset does not.
What does "no time limit" mean if there is an inactivity rule?
It means the evaluation does not expire on a fixed date, but the account can still lapse if you stop trading. The two are compatible, and firms rely on traders conflating them.
Is a prop firm a broker?
Sometimes both, but the roles differ. A broker executes your orders on your own capital; a prop firm provides a rules-bound account and shares profit.