Prop Trading Glossary: 45 Essential Terms

Prop trading has its own vocabulary, and most of it appears for the first time in a rulebook you are reading under pressure. This glossary covers the terms that actually change outcomes.

A–C

Account size. The nominal capital assigned to an evaluation or funded account. Risk limits are percentages of this figure, so it determines your stop-out levels in currency.

Add-on. A paid upgrade to an evaluation — commonly a higher profit split or the removal of minimum trading days. Usually priced as a percentage of the challenge fee.

Arbitrage. Exploiting price differences between venues or accounts. Prohibited by essentially every prop firm, and a common reason for revoked accounts.

Balance. Realised account value — closed trades only. Distinct from equity.

Breach. A rule violation. See hard breach and soft breach.

Buffer (profit buffer). A locked slice of early profit that cannot be withdrawn, typically 3% of starting balance on instant-funding accounts. It protects the account and delays your first payout.

Challenge. The evaluation you purchase. Also "assessment" or "evaluation".

Consistency rule. A cap on how much of your total profit may come from a single day or trade, commonly 25–50%. Prevents a single lucky session from qualifying you for a payout.

Copy trading. Mirroring trades across accounts. Usually permitted only between accounts owned by the same trader; group signal services are almost always prohibited.

D–H

Daily loss limit. The maximum you may lose in one trading day. Check two details: whether it is measured on balance or equity, and what time it resets.

Drawdown. The decline from a peak. In prop rules, the maximum permitted decline before the account is closed.

Drawdown lock. The point at which a trailing drawdown stops trailing, usually when it reaches the initial balance.

EA (Expert Advisor). An automated trading program. Generally allowed if it uses genuine market execution and does not exploit latency or pricing errors.

Equity. Balance plus the unrealised P&L of open positions. Most breach calculations use equity, not balance — which is why an open loser can breach you before you close it.

Evaluation. See challenge.

Front-running. Trading ahead of known order flow. Prohibited.

Funded account. The account issued after passing, on which you earn a profit share.

Gambling behaviour. All-in or maximum-leverage positions taken to reach a target. Prohibited by most firms even when profitable.

Hard breach. A violation that ends the account — typically daily loss, maximum drawdown or inactivity.

High-impact news. Scheduled economic releases (NFP, CPI, rate decisions) around which many firms impose a trading blackout, commonly ±3 minutes.

I–N

Inactivity rule. Account closure after a period with no trading, commonly 30 consecutive days.

Instant funding. A funded account issued without an evaluation, in exchange for a higher fee and tighter rules.

KYC. Know Your Customer — identity verification required before payouts. Complete it the day you are funded, not the day you request money.

Latency arbitrage. Exploiting delays in price feeds. Prohibited and actively monitored.

Leverage. The ratio of position size to margin. Prop firms cap it per asset class, e.g. 50:1 FX, 10:1 indices, 2:1 crypto.

Lot. A standard contract unit. In FX, 1 lot = 100,000 units of the base currency.

Margin. Capital reserved to hold a position. Effectively determines your maximum position size.

Minimum trading days. Days on which at least one position was opened and closed. Typically 3–5.

Notional funding. Accounts that mirror live market conditions while the firm manages aggregate risk internally rather than routing each trade. P&L is calculated identically and profit shares are paid in real money.

O–R

One-step. A single-phase evaluation, usually with a higher target and tighter drawdown.

Overnight / weekend holding. Whether positions may be carried outside the session. Check both, they are separate permissions.

Payout. A withdrawal of your profit share.

Payout cycle. How often payouts may be requested — every 14 days, monthly, or on demand.

Phase. One stage of an evaluation. Two-step evaluations have two.

Profit split. Your percentage of the profit. Commonly 70–90%, applied at withdrawal.

Profit target. The gain required to pass a phase.

Prop firm. A proprietary trading firm that provides capital in exchange for a profit share.

Reset. Restarting a failed evaluation, usually for a reduced fee.

S–Z

Scaling plan. A published schedule for increasing account size after sustained profitability.

Simulated trading. Trading in an environment that reflects live pricing without the trader's own capital at risk.

Slippage. The difference between expected and executed price. It counts toward your limits, so leave margin for it.

Soft breach. A violation that closes the offending trades but leaves the account active.

Spread. The difference between bid and ask. A direct cost on every trade and a real factor in tight evaluations.

Static drawdown. A drawdown fixed to the starting balance that never trails profits. The most forgiving type.

Stop-out level. The equity figure at which the account is closed. Know it in currency, not in percent.

Swap. Overnight financing on a held position. Small individually, meaningful across weeks.

Trader agreement. The contract signed before a funded account is issued.

Trailing drawdown. A drawdown that follows your equity or balance high, reducing the room you have as you profit.

Two-step. A two-phase evaluation, usually cheaper with lower per-phase targets.

Verification. Either the second phase of a two-step evaluation, or the KYC process before funding. Context decides which.