Prop Trading Glossary: Essential Terms Explained
Master the language of prop trading with our comprehensive glossary. Understanding these terms is crucial for navigating evaluation rules, funded account requirements, and trading platform features.
Account Size
The total capital amount in your trading account, typically ranging from $25,000 to $300,000. Account size determines your buying power, profit targets, and maximum position sizes. Larger accounts offer higher profit potential but require larger evaluation fees and often have higher profit targets.
Challenge
Alternative term for evaluation or assessment phase. The challenge tests your ability to trade profitably while following specific rules before receiving a funded account. Some firms use "challenge" and "evaluation" interchangeably.
Consistency Rule
A requirement that no single trading day can represent more than 30-40% of your total profits. For example, if you make $3,000 total profit, no single day can contribute more than $1,000-$1,200. This prevents "lottery ticket" trading and ensures consistent performance. Learn more in our consistency rules guide.
Copy Trading
Technology that automatically replicates trades from a master account to multiple follower accounts. Essential for scaling across multiple prop firm accounts. When you place a trade on one account, the system automatically places identical trades on your other accounts.
Daily Loss Limit
Maximum amount you can lose in a single trading day, typically 2-3% of account size. For a $100,000 account with 2% daily loss limit, you cannot lose more than $2,000 in any single day. Violating this limit immediately fails your evaluation or funded account.
Drawdown (Trailing/Static/EOD)
The maximum decline from your account's peak value. Static drawdown is calculated from your starting balance. Trailing drawdown follows your account's highest value. EOD (End of Day) drawdown is only calculated at market close, not intraday.
Evaluation
The testing phase where you trade a simulated account to prove your skills before receiving real capital. Evaluations typically last 30-60 days and require hitting profit targets while staying within risk limits. Also called challenges or assessments.
Funded Account
Live trading account with real money that you receive after passing evaluation. Funded accounts often have different rules than evaluation accounts, typically with tighter risk management requirements but lower profit targets.
Instruments
Financial products available for trading, primarily futures contracts. Popular instruments include stock index futures (NQ, ES), commodities (CL, GC), and currency futures (6E, 6J). Some firms restrict certain instruments during evaluation or funded phases.
Leverage
The ratio of position size to account capital. Futures trading typically offers 10:1 to 50:1 leverage, meaning a $100,000 account can control $1-5 million in contract value. Higher leverage amplifies both profits and losses.
Lot Size
The standard unit of trading for a particular instrument. In futures, lot size equals contract size. One NQ contract represents $20 per point movement, while one ES contract represents $50 per point. Understanding lot sizes is crucial for position sizing.
Max Accounts
Maximum number of funded accounts you can hold simultaneously with a single prop firm. Ranges from 1 account (some firms) to 20+ accounts (Apex). Higher limits enable greater scaling potential for successful traders.
Micro Contract
Smaller-sized futures contracts designed for retail traders. Examples: MNQ (Micro Nasdaq = 1/10 size of NQ), MES (Micro S&P = 1/10 size of ES). Point values are proportionally smaller, allowing more precise position sizing.
Mini Contract
Mid-sized futures contracts, typically 1/5 the size of full contracts. Less common than micro or full contracts. Some prop firms prefer traders use micro contracts for better risk management on smaller accounts.
NQ/ES/MNQ/MES/YM/RTY/CL/GC
Popular futures contracts. NQ: Nasdaq-100 ($20/point). ES: S&P 500 ($50/point). MNQ: Micro Nasdaq ($2/point). MES: Micro S&P ($5/point). YM: Dow Jones ($5/point). RTY: Russell 2000 ($50/point). CL: Crude Oil ($1,000/point). GC: Gold ($100/point).
Payout
Profit withdrawal from your funded account. Most firms offer weekly or bi-weekly payout requests with minimum withdrawal amounts ($50-$200). Processing typically takes 1-7 business days depending on payment method.
Profit Split
Percentage division of profits between trader and prop firm. Common splits are 80/20 or 90/10 in favor of the trader. Some firms increase your split percentage after reaching certain profit milestones or maintaining accounts for extended periods.
Profit Target
Minimum profit amount required to pass evaluation or qualify for payouts. Evaluation targets typically range from 6-10% of account size. Funded account targets are often lower (3-5%) or may not exist at all.
Prop Firm
Proprietary trading firm that provides capital to traders in exchange for profit sharing. The firm supplies the capital and technology while traders provide the skill and labor. Legitimate prop firms make money when traders are profitable.
Reset
Option to restart a failed evaluation by paying a reset fee (typically 50-80% of original evaluation cost). Resets provide a fresh start with the same rules and targets as your original evaluation.
Rithmic
Professional-grade trading infrastructure provider offering fast execution and reliable data feeds. Popular with day traders for DOM (depth of market) trading. Monthly data fees typically $30-$50 but provide institutional-quality execution speed.
Scaling Plan
Structured approach to growing your trading capital through multiple accounts. Common progression: master 1 account โ add 2-3 accounts โ scale to 5-10 accounts โ potentially reach maximum limits (10-20 accounts depending on firm).
Sim Account
Simulation account using real market data but virtual money. All evaluation accounts are sim accounts. The trading experience is identical to live trading, but no real capital is at risk during the evaluation phase.
Step (1-step/2-step)
1-step: Single evaluation phase before funding (higher profit targets). 2-step: Two evaluation phases with different requirements (lower individual targets but longer process). Choose based on your risk tolerance and timeline preferences.
TopstepX
Topstep's proprietary trading platform designed specifically for their evaluation and funded trading programs. Features integrated risk management, performance tracking, and direct integration with Topstep's evaluation rules and requirements.
Tradovate
Web-based futures trading platform offering mobile and desktop access. Popular among prop firms for its clean interface and lower costs. Compatible with third-party platforms like NinjaTrader 8. Often included free with prop firm accounts.
Trailing Drawdown
Dynamic maximum loss limit that follows your account's highest achieved balance. As you make profits, your maximum loss limit moves up proportionally. Example: $50k account with 5% trailing drawdown reaches $55k, your new maximum loss limit becomes $52.25k (5% below your new high). See our full drawdown guide for visual examples.
Frequently Asked Questions
What's the most important term for new prop traders to understand?
Drawdown โ both static and trailing. Misunderstanding drawdown mechanics is the #1 reason traders lose funded accounts. Know your exact drawdown level at all times.
What's the difference between a "challenge" and an "evaluation"?
They're the same thing โ different firms use different terminology. Both refer to the simulated trading phase where you prove your skills before receiving a funded account. Read our evaluation guide for the full process.
What does "EOD flat" mean?
"EOD flat" means you must close all positions before the end of day. Most prop firms require this โ holding positions overnight is typically prohibited. Check your firm's specific trading hours to know exactly when you must be flat.
Master Prop Trading Fundamentals
Understanding these terms is just the beginning. Dive deeper into specific concepts like drawdown mechanics and evaluation strategies to improve your success rate.