TPThe Trading Playbook
Reference

Prop Trading Glossary

Plain-English definitions for every term you will encounter when researching prop firms — from drawdown rules to payout splits.

130
Terms defined
8
Categories
2026
Up to date
Jump to:Risk Management18Challenge Rules20Payout14Trading Mechanics47Account Types10Instruments6Platforms4General11
⚠

Risk Management18 terms

Drawdown limits, loss rules, and how prop firms measure and enforce risk.

Balance Drawdown→
A drawdown rule calculated from the closed-trade account balance rather than live equity, offering more flexibility for traders holding open positions.
Breakeven→
Moving a stop-loss to the trade entry price once a position is in profit, eliminating the risk of a losing trade.
Compounding→
Reinvesting profits to increase position sizes progressively, growing account equity at an accelerating rate over time.
Diversification→
Spreading risk across multiple uncorrelated instruments or strategies to reduce the impact of any single losing trade on overall account equity.
Drawdown→
The percentage decline from a peak account value to a trough, measuring how far an account has fallen before recovering.
Equity Drawdown→
A drawdown rule measured against the live equity value including open positions, making it more restrictive than balance-based drawdown.
Max Daily Loss→
The maximum amount a trader is allowed to lose within a single trading day before their account is restricted or failed.
Max Total Loss→
The maximum cumulative loss permitted over the life of a challenge or funded account before the account is terminated.
Overnight Risk→
The risk of adverse price movement while a position is held overnight when the trader cannot monitor or close it.
Portfolio→
The collection of all open positions and instruments a trader holds simultaneously, evaluated as a whole for aggregate risk and performance.
Position Sizing→
The process of calculating how many lots or units to trade based on account size, stop-loss distance, and risk percentage per trade.
Risk Per Trade→
The percentage or dollar amount of account equity a trader is willing to lose on any single trade, a core element of risk management.
Risk-Reward Ratio→
The ratio comparing the potential profit of a trade to its potential loss, expressed as R:R (e.g. 1:2 means risking 1% to make 2%).
Static Drawdown→
A drawdown limit calculated from the original starting balance that never changes regardless of how much profit is made.
Stop-Loss→
An order that automatically closes a trade at a pre-specified price to limit losses if the market moves against the position.
Time in Drawdown→
The duration for which an account remains below its peak equity, a measure of how long a trader is recovering from losses.
Trailing Drawdown→
A drawdown limit that moves upward as the account equity rises, locking in the high watermark so the maximum loss threshold follows profits.
Trailing Stop→
A dynamic stop-loss that moves in the direction of a profitable trade by a fixed amount or percentage, locking in gains while letting profits run.
✓

Challenge Rules20 terms

Profit targets, time limits, trading day requirements, and evaluation policies.

Account Breach→
Violating a prop firm rule — such as exceeding the daily loss limit or total drawdown — resulting in automatic termination of the challenge or funded account.
Challenge→
The paid evaluation process at a prop firm where a trader must meet profit targets while staying within risk limits to qualify for a funded account.
Challenge Fee Refund→
The return of the initial challenge fee to the trader upon receiving their first profit payout, offered by many prop firms.
Consistency Rule→
A requirement at some prop firms that limits how much of your total profit can come from a single trading day, encouraging steady performance over time.
Consistency Score→
A metric some prop firms use to measure how evenly distributed a trader's profits are across trading days, with a minimum threshold required for payout.
Daily Reset→
The time at which the daily loss counter resets, usually at New York close (5pm ET or midnight server time), marking the start of a new trading day.
Evaluation→
The testing period during which a trader demonstrates their skills by meeting profit targets and adhering to risk rules before receiving prop firm funding.
Free Retry→
A benefit offered by some prop firms that allows a trader to restart a failed challenge at no additional cost, subject to conditions.
Minimum Trading Days→
The minimum number of days a trader must have at least one open trade during an evaluation phase, preventing the challenge from being passed in a single session.
One-Phase Challenge→
An evaluation with a single trading phase where passing the profit target and staying within risk limits immediately qualifies you for a funded account.
One-Step Challenge→
An evaluation model with a single phase where a trader meets one profit target and risk limit before receiving a funded account.
Phase 1→
The first stage of a two-step prop firm evaluation with a higher profit target, requiring a trader to prove consistent performance before advancing.
Phase 2→
The second and final stage of a two-step evaluation with a lower profit target, serving as a verification of consistent trading before funding.
Profit Target→
The minimum percentage gain a trader must achieve to pass a challenge phase and advance to the next stage or receive funding.
Prop Firm Rules→
The set of trading restrictions and requirements a prop firm imposes during evaluation and on funded accounts, covering drawdown, profit targets, trading hours, and strategy restrictions.
Reset→
The option to restart an evaluation or funded account from scratch, restoring the original balance after paying a reset fee.
Soft Breach→
A rule violation that triggers a warning rather than immediate account termination, giving the trader an opportunity to correct the issue.
Time Limit→
The maximum number of calendar days a trader has to complete an evaluation phase and hit the profit target.
Two-Step Challenge→
The most common prop firm evaluation structure with two sequential phases, each requiring profit targets to be hit before funding is granted.
Weekend Holding→
The ability to keep positions open over the weekend; some prop firms prohibit this due to gap risk.
$

Payout14 terms

Profit splits, withdrawal methods, fees, and how you get paid.

Account Management Fee→
Fees deducted from a funded account for administrative, platform, or data costs, separate from the challenge fee.
Bank Transfer→
A payout method where the prop firm sends funds directly to the trader's personal bank account via wire transfer.
Challenge Fee→
The price paid to enter a prop firm evaluation, typically ranging from $50 to $700 depending on account size and firm.
Crypto Payout→
Receiving prop firm profit payments in cryptocurrency (typically USDT or BTC) to a personal wallet, often used as an alternative to bank transfers.
Funding Fee→
The upfront cost paid to start a prop firm challenge or access a funded account, which may or may not be refunded upon the first payout.
High Water Mark→
The highest account equity value ever reached, used as the reference for trailing drawdown calculations and in some payout structures.
Monthly Fee→
A recurring subscription charge some prop firms impose on funded traders to maintain access to their funded account.
Payment Method→
The channel through which a prop firm sends profits to the trader, including bank wire, crypto wallets, Deel, Rise, or payment processors.
Payout→
The distribution of a funded trader's share of profits from the prop firm to the trader's personal account.
Payout Request→
The formal submission a funded trader makes to a prop firm to initiate withdrawal of their earned profit share.
Payout Split→
The percentage of profits a funded trader keeps versus the share retained by the prop firm, typically expressed as trader/firm (e.g. 80/20).
Profit Share→
The portion of trading profits paid to the funded trader, determined by the payout split agreement with the prop firm.
Profit Split→
The division of trading gains between the funded trader and the prop firm, with the trader's share ranging from 50% to 100% depending on the firm.
Withdrawal→
The act of requesting and receiving your earned profit share from a prop firm into your own bank or crypto account.
⟳

Trading Mechanics47 terms

How trades work — orders, execution, strategies, and market concepts.

Algorithmic Trading→
Using computer programs to execute trades automatically based on predefined logic, rules, or statistical models without manual input.
Arbitrage→
Exploiting price discrepancies for the same or equivalent instruments across different brokers or markets to generate risk-free profit.
Backtesting→
Testing a trading strategy on historical price data to evaluate its performance and viability before using it with real or funded capital.
Bollinger Bands→
A volatility indicator consisting of a moving average with two standard deviation bands above and below, used to identify overbought/oversold conditions and breakouts.
Breakout→
A trade entry that occurs when price moves decisively beyond a key support or resistance level, often accompanied by increased volume.
Candlestick→
A price chart element representing one time period's open, high, low, and close; patterns formed by candlesticks are used as entry signals.
Chart Pattern→
A recognizable formation in price charts such as head and shoulders, double top, or flags that traders use to predict future price direction.
Commission→
A fixed fee charged per lot traded by the broker or prop firm, separate from the spread.
Copy Trading→
Automatically mirroring the trades of another trader in real time, either via a platform feature or third-party signal service.
Correlation→
A statistical measure of how two instruments move in relation to each other; positively correlated pairs move together, negatively correlated pairs move inversely.
Day Trading→
A style where all positions are opened and closed within the same trading day, avoiding overnight risk.
EA / Bot→
An Expert Advisor (EA) or automated trading robot that executes trades automatically based on pre-programmed rules without manual intervention.
Economic Calendar→
A schedule of planned macroeconomic data releases, central bank decisions, and speeches that can cause significant market volatility.
Execution→
The process of completing a trade order at a broker or prop firm, encompassing speed, price accuracy, and fill quality.
Fibonacci Retracement→
A technical tool using horizontal lines at key Fibonacci ratios (23.6%, 38.2%, 61.8%) to identify potential support and resistance levels after a price swing.
Forward Testing→
Testing a strategy on live or current market data in real time (often on a demo account) to validate backtesting results before using real capital.
Fundamental Analysis→
Evaluating an asset's value based on economic, financial, and qualitative factors such as GDP, earnings, interest rates, and monetary policy.
Hedge→
A trade or position taken specifically to offset the risk of an existing position.
Hedging→
Simultaneously holding opposing positions on the same or correlated instruments to reduce directional risk exposure.
High-Impact News→
Economic releases with the potential to cause large, sudden price movements, such as Non-Farm Payrolls, CPI, or Fed interest rate decisions.
Indicator→
A mathematical calculation applied to price or volume data to generate trading signals, displayed on or below a price chart.
Latency→
The delay between placing a trade order and its execution at the broker, measured in milliseconds; low latency is critical for high-frequency and scalping strategies.
Leverage→
The ratio of trade size to actual capital used, allowing traders to control larger positions with less margin; expressed as 1:10, 1:100, etc.
Limit Order→
An order to buy or sell at a specified price or better, guaranteeing the price but not the fill.
Lot→
A standardized unit of measurement for trade size: a standard lot = 100,000 units, mini lot = 10,000 units, micro lot = 1,000 units.
Lot Size→
The standardized unit of trade volume in forex and CFD markets; a standard lot equals 100,000 units of the base currency.
MACD→
Moving Average Convergence Divergence — a trend-following momentum indicator showing the relationship between two moving averages of price.
Margin→
The portion of account equity required as collateral to open and maintain a leveraged position.
Market Order→
An instruction to buy or sell immediately at the best available current price, prioritizing speed of execution over price control.
Mean Reversion→
A strategy that bets on prices returning to a historical average after deviating, using overbought/oversold signals as entry triggers.
Moving Average→
A lagging indicator that smooths price data by calculating the average over a rolling period, used to identify trend direction and dynamic support/resistance.
News Trading→
A strategy of opening trades around high-impact economic news releases to capitalize on volatility spikes.
Pending Order→
An order set to execute automatically when the market price reaches a specified level, including buy/sell limits and buy/sell stops.
Pip→
The smallest standard price movement in a currency pair, typically the fourth decimal place (0.0001) for most pairs.
Position Trading→
A long-term approach holding trades for weeks to months based on fundamental or macro analysis.
RSI (Relative Strength Index)→
A momentum oscillator ranging from 0-100 that measures the speed and magnitude of price changes, used to identify overbought (>70) and oversold (<30) conditions.
Scalping→
A high-frequency trading strategy that targets many small profits from rapid trades, typically held for seconds to minutes.
Slippage→
The difference between the expected fill price and the actual execution price, typically occurring during fast-moving markets or low liquidity.
Spread→
The difference between the bid and ask price of an instrument, representing the broker's transaction cost paid by the trader on every trade.
Support & Resistance→
Price levels where buying or selling pressure has historically been strong enough to halt or reverse price movement.
Swap→
The overnight interest charge or credit applied to positions held past the daily rollover time, based on the interest rate differential between the two currencies.
Swing Trading→
A medium-term strategy holding positions from one day to several weeks to capture multi-day price swings.
Take-Profit→
An order that automatically closes a trade when a target profit level is reached, locking in gains.
Technical Analysis→
The study of historical price and volume data through charts and indicators to forecast future market movements.
Trend Following→
A strategy that identifies and trades in the direction of the prevailing market trend using momentum and price action signals.
Volatility→
The degree of price variation in a market over time; high volatility means larger, faster price swings and greater potential risk and reward.
Weekend Gap→
The price difference between Friday's closing price and Monday's opening price caused by news and events occurring over the weekend when markets are closed.
◉

Account Types10 terms

The different account models prop firms offer and how they compare.

Account Size→
The total capital allocated to a trading account, which determines position sizing limits and absolute drawdown thresholds.
Demo Account→
A practice account using virtual money that simulates real market conditions without financial risk.
Funded Account→
A trading account capitalized by a prop firm given to a trader who has passed the evaluation challenge, allowing them to trade real or simulated capital and earn a share of profits.
Instant Funding→
A prop firm model where a trader pays a fee and immediately receives a funded account without completing an evaluation challenge.
Live Account→
A funded trading account connected to real market liquidity where profits and losses have genuine financial impact on the prop firm.
Master Account→
A primary account at a prop firm from which sub-accounts or multiple funded accounts may be managed under a single trader profile.
Scaling→
The process by which a prop firm increases a trader's account size as they meet performance milestones, allowing traders to manage larger capital over time.
Scaling Plan→
A structured program that increases a trader's funded account size when predefined profit milestones and consistency requirements are met.
Simulated Account→
A prop firm funded account that uses virtual capital with real market data, where the firm pays out profits from its own reserves rather than actual trading proceeds.
Starting Balance→
The initial account value at the beginning of a challenge or funded period, used as the reference point for static drawdown calculations.
◈

Instruments6 terms

The markets and asset classes available to prop traders.

Commodities→
Physical goods such as gold, silver, oil, and natural gas traded as CFDs; commonly available at prop firms alongside forex.
Cryptocurrency→
Digital assets such as Bitcoin, Ethereum, and other altcoins available for CFD trading at select prop firms, typically with lower leverage limits.
Forex→
The foreign exchange market where currency pairs are traded; the most liquid and widely offered market at prop firms.
Indices→
Baskets of stocks representing a market or sector (e.g. S&P 500, NASDAQ, DAX) traded as CFDs at most prop firms.
Instruments→
The financial products available to trade at a prop firm, such as forex pairs, indices, commodities, cryptocurrencies, and stocks.
Stocks / Equities→
Shares of individual publicly-listed companies available as CFDs at some prop firms, though far less common than forex or indices.
◻

Platforms4 terms

The trading software prop firms support.

cTrader→
An advanced trading platform known for its transparent ECN execution, intuitive interface, and cAlgo automated trading environment.
MetaTrader 4 (MT4)→
The most widely used retail and prop firm trading platform, known for its extensive EA ecosystem, custom indicators, and simple interface.
MetaTrader 5 (MT5)→
The successor to MT4 with additional asset classes, more timeframes, improved backtesting, and a different MQL5 programming language for EAs.
Trading Platforms→
The software used to execute, monitor, and manage trades; common prop firm platforms include MetaTrader 4, MetaTrader 5, and cTrader.
○

General11 terms

Fundamental concepts every prop trader should understand.

Blacklist→
A list of prop firms flagged by the trading community for dishonest practices such as refusing payouts, changing rules without notice, or targeting traders to fail.
Broker→
An intermediary that executes trades in financial markets on behalf of traders, providing access to instruments, leverage, and pricing.
Firm Reputation→
The overall standing of a prop firm in the trading community based on payout consistency, rule transparency, customer support, and community reviews.
Identity Verification→
The process of confirming a trader's identity through official documents before a prop firm processes a payout or account access.
KYC (Know Your Customer)→
The identity verification process prop firms require before processing payouts, typically including government ID and proof of address.
Liquidity Provider→
A financial institution or bank that provides buy and sell quotes in large volumes to brokers and prop firms, ensuring trades can be filled at market prices.
Prop Firm→
A proprietary trading firm that provides capital to traders who pass a qualification challenge, splitting profits in exchange for adhering to defined risk rules.
Prop Firm Scam→
A fraudulent prop firm operation that takes challenge fees but manipulates rules or outright refuses to pay legitimate funded traders.
Regulatory Status→
Whether a prop firm operates under a regulated financial license (e.g. FCA, CySEC) or as an unregulated entity offering simulated trading environments.
Trading Strategy→
A defined set of rules that guides when to enter, manage, and exit trades, including instruments traded, timeframe, and risk parameters.
Trustpilot Score→
A public review platform score out of 5 that reflects aggregated user experience ratings, commonly used to assess prop firm reputation.

Ready to compare prop firms?

Use our side-by-side comparison tool to see which firms have the best rules for your trading style.

Compare Firms →Browse All Firms