Account Scaling

The practice of increasing a trader’s funded account allocation after they demonstrate sustained profitability and satisfy the performance criteria established by the prop firm.

Example: A trader who records three profitable months in a row may have their $100K account increased to $200K while keeping the same profit split.

Activation Fee

A one-time charge that a trader may need to pay to activate a funded account after completing and passing the evaluation stage. This fee is particularly common among futures prop firms.

Example: Topstep charges a $150 activation fee when a trader moves from the evaluation phase to a funded account.

Arbitrage

A trading approach that seeks to capture price discrepancies for the same asset across different markets or exchanges. Some prop firms prohibit or limit arbitrage because the strategy can involve relatively low market risk.

ATM (At The Money)

An options term describing a contract whose strike price is approximately equal to the current market price of the underlying asset. This concept is especially relevant when evaluating options-focused prop firms.

Automated Trading

The use of algorithms, trading bots, or Expert Advisors (EAs) to place and manage trades according to predefined rules without requiring manual execution for every order. Prop firms differ in whether they permit automated trading.

Balance-Based Drawdown

A drawdown method calculated using the account balance from closed trades, without factoring in unrealized gains or losses from open positions. This is generally less restrictive than an equity-based drawdown calculation.

Breach

A violation of one or more rules established by a prop firm, often involving drawdown limits, risk parameters, or restricted trading activity. A breach can result in an evaluation failure or termination of a funded account.

Example: Trading during prohibited news events or exceeding the firm's daily loss limit can trigger an account breach.

Buffer

An additional amount of available room above a firm's minimum requirements that can help absorb small losses before a rule violation occurs. Some prop firms incorporate a specific buffer into their drawdown structure.

Challenge

A structured evaluation period in which traders must reach defined profit objectives while staying within the firm's risk and trading rules to qualify for a funded account. It may also be referred to as an evaluation or assessment.

Example: A 30-day challenge with an 8% profit target, a 5% daily drawdown limit, and a 10% maximum drawdown.

Consistency Rule

A condition requiring traders to maintain a relatively even distribution of profits, usually by limiting how much of the total profit can come from a single trading day. The limit commonly falls between 30% and 50%.

Example: With $10,000 in total profit and a 30% consistency limit, no single trading day could contribute more than $3,000.

Copy Trading

The automatic duplication of trades from one trading account to another. Many prop firms restrict or prohibit copying trades between multiple accounts, particularly when the accounts are held by the same trader.

Combine

A term used by Topstep for its evaluation stage, during which traders demonstrate consistent performance and meet the requirements needed to progress toward funding.

Commission

A trading cost charged based on the number of contracts, shares, lots, or other units traded. Depending on the firm and programme, commissions may be included in the trading costs or deducted from the trader's profits.

Daily Drawdown

The maximum amount a trader is permitted to lose within a single trading day. Depending on the firm's rules, it may be calculated from the day's opening balance or from the highest account value reached during the session.

Example: On a $100K account with a 5% daily drawdown limit, the trader cannot lose more than $5,000 during that trading day.

Demo Account

A simulated trading account designed to replicate market conditions without exposing real trading capital. Many retail-funded prop firms use demo or simulated trading environments for their evaluations and funded programmes.

Direct Funding

A prop firm model that gives traders access to a funded account without requiring them to complete a traditional evaluation first. These programmes may compensate for skipping the evaluation with lower profit splits, tighter risk limits, or other restrictions.

Drawdown

The decline in account value from a previous peak to a subsequent low, usually expressed as a dollar amount or percentage. Prop firms commonly use drawdown as a key measure for controlling trading risk.

Example: If an account rises from $100K to $110K and later falls to $105K, the drawdown from the peak is $5K, or approximately 4.5%.

EA (Expert Advisor)

Automated trading software designed for MetaTrader platforms that can analyze markets and execute trades according to predefined rules. Prop firms vary in whether they permit EAs or impose restrictions on their use.

Example: An EA can automatically enter and exit trades when a specified moving-average crossover occurs.

EOD (End of Day)

A term used for calculations, limits, or rule updates that occur at the end of a trading day. Some prop firms use EOD trailing drawdown, meaning the trailing threshold is recalculated only after the trading session has ended.

Equity-Based Drawdown

A drawdown calculation that includes both the account balance and unrealized profit or loss from open positions. Because open losses count toward the limit immediately, this approach is generally more restrictive than balance-based drawdown.

Evaluation

The assessment stage in which a trader must demonstrate that they can meet specified profit and risk requirements before progressing to a funded account. Evaluations may involve one phase or multiple stages with different targets.

Example: A two-step evaluation could require an 8% profit target in Phase 1 followed by a 5% target in Phase 2.

Extended Hours

Trading activity that takes place outside a market's regular trading session. Some prop firms limit or prohibit extended-hours trading because liquidity and market conditions can differ significantly from the main session.

Funded Account

A trading account or funded programme allocation provided by a prop firm after a trader successfully completes the required evaluation. The trader is typically entitled to a predetermined share of the profits generated under the firm's rules.

Example: After passing an FTMO evaluation, a trader may receive a $100K funded account with an 80% profit split, subject to the firm's current terms.

Fixed Drawdown

A maximum-loss threshold that stays at the same level regardless of how much the account grows. The floor is established from the initial account balance and does not move higher as profits accumulate.

Example: With a $50K account and a $2K fixed drawdown, the loss floor remains at $48K even if the account later reaches $60K.

Free Trial

A complimentary evaluation or limited-access period offered by some prop firms, allowing traders to explore the platform, rules, or trading environment before purchasing a full challenge.

Flipping

A high-risk approach in which a trader attempts to pass an evaluation very quickly by taking unusually large positions or risks, then switches to more conservative trading after receiving funding. Some prop firms restrict this behaviour through specific anti-flipping or consistency rules.

Gambling

A trading approach characterized by excessive risk-taking without a clearly defined strategy, analysis, or risk-management framework. Some prop firms may flag or restrict trading patterns they consider gambling-like and can take action under their risk rules.

Grace Period

An additional period of time a prop firm may provide for completing an evaluation or meeting specific requirements after the original deadline has passed. Depending on the firm, this extension may be free or available for an additional fee.

Grid Trading

A strategy that places multiple buy and sell orders at predetermined price intervals, creating a grid of positions around the market. Some prop firms restrict grid strategies because accumulating multiple positions can create significant exposure when the market moves strongly in one direction.

Hedging

A risk-management technique that involves taking offsetting positions in the same or related instruments to reduce exposure to market movements. Prop firms have different policies regarding whether and how hedging is permitted.

Example: A trader holding a long EUR/USD position may open a short position in the same pair to partially offset potential losses or lock in an existing gain.

HFT (High-Frequency Trading)

A form of algorithmic trading that relies on highly optimized computer systems to execute large numbers of orders at extremely high speeds. HFT is particularly common among quantitative and institutional prop firms, where even very small price differences can be targeted.

High-Water Mark

The highest account value reached during a specified period. Prop firms may use this level as the reference point for calculating trailing drawdown, causing the allowable loss threshold to move higher as the account reaches new peaks.

Inactivity Fee

A charge that may be applied when a funded account remains unused for a specified period without any trading activity. Prop firms may impose these fees to encourage traders to maintain regular account activity.

Instant Funding

A prop firm programme that provides access to a funded account without requiring the trader to complete a traditional evaluation first. These programmes often compensate for the absence of an evaluation with lower profit splits, stricter drawdown limits, or other trading restrictions.

Instruments

The financial assets or markets available for trading through a prop firm's programme. Common instruments include forex pairs, stock indexes, commodities, cryptocurrencies, and individual stocks.

Leverage

The use of a relatively small amount of capital to control a larger trading position. Depending on the firm and programme, prop trading leverage may range from approximately 1:10 to 1:100.

Example: With 1:100 leverage, $1,000 of available capital can provide exposure to a $100,000 currency position.

Lot Size

The standardized quantity of an asset represented by a single trading lot. In forex, a standard lot typically represents 100,000 units of the base currency, while a mini lot represents 10,000 units and a micro lot represents 1,000 units.

Loss Limit

A predefined maximum amount an account is permitted to lose before a rule violation occurs. Depending on the programme, the limit may apply daily, weekly, or across the entire account. Exceeding the specified threshold can result in an evaluation failure, account suspension, or termination.

Live Account

A trading account connected to real market execution and actual trading capital, rather than a simulated or demo environment. Some prop firms provide genuine live trading accounts, although the structure and level of market access can vary between programmes.

Market Making

A trading strategy in which a firm continuously provides buy and sell quotes, earning potential returns from the difference between the bid and ask prices while managing inventory and market risk. It is widely used by institutional quantitative trading firms.

Example: Jane Street provides liquidity across thousands of ETFs and other financial products, facilitating transactions for market participants.

Martingale

A high-risk position-sizing strategy that increases the size of a trade after a loss, often by doubling the previous position. Because losses can escalate rapidly, many prop firms prohibit or restrict Martingale-style trading.

Max Allocation

The maximum amount of funded capital, or the maximum number of accounts, that a trader is permitted to control under a firm's rules.

Example: A firm may allow a trader to manage up to $400K in total funding, with a maximum of $200K allocated to any individual account.

Maximum Drawdown

The largest decline an account is allowed to experience before the trader violates the firm's risk limits. Depending on the programme, the calculation may be based on the initial balance, a fixed threshold, or a highest account value reached.

Example: With a 10% maximum drawdown on a $100K account, a $90K drawdown floor would apply if the rule is calculated from the starting balance.

Minimum Trading Days

The minimum number of days on which a trader must place qualifying trades during an evaluation or funded period. These requirements are often designed to prevent traders from passing solely through the results of a single unusually successful session.

News Trading

A trading approach that involves entering or managing positions around major economic releases and market-moving announcements. Because these events can produce sharp volatility, wider spreads, and increased slippage, some prop firms limit or prohibit trading during specific news windows.

Example: Trading during releases such as Nonfarm Payrolls (NFP), Federal Reserve (FOMC) decisions, or European Central Bank (ECB) announcements.

No Time Limit

An evaluation structure that does not impose a fixed deadline for reaching the required profit target. Traders can take additional time to complete the evaluation as long as they continue to follow the firm's other rules.

Net P&L

The account's profit or loss after applicable trading costs, such as commissions, fees, and swaps, have been taken

One-Step Evaluation

An evaluation model with only one qualification phase before a trader can progress to a funded account, unlike programmes that require traders to complete multiple stages.

Overnight Positions

Trades that remain open after the regular daily trading session has ended. Some prop firms limit or prohibit overnight positions because markets can experience significant price gaps outside normal trading hours.

Overtrading

Taking more trades or using larger positions than are appropriate for the account's size and risk parameters. Excessive activity can reflect weak risk management and, under some firms' rules, may be interpreted as gambling-style behaviour.

Payout

A withdrawal of eligible profits from a funded trading account. Each firm establishes its own payout schedule, eligibility requirements, and available payment methods, which may include weekly, bi-weekly, monthly, or on-demand withdrawals.

Example: A prop firm may advertise payout processing within 24 hours through methods such as bank transfers or cryptocurrency, subject to its current terms.

Payout Certificate

A document or confirmation issued by a prop firm as evidence that a trader has received a payout. Traders may share these records publicly as supporting evidence of the firm's payment history.

Performance Fee

The portion of a trader's profits retained by the prop firm under a profit-sharing arrangement. For example, an 80% trader profit split corresponds to a 20% share retained by the firm.

Profit Split

The percentage of eligible trading profits allocated to the trader versus the portion retained by the prop firm. Depending on the programme, the trader's share can range from a minority percentage to 100%.

Example: With an 80% profit split on $10,000 in eligible profit, the trader receives $8,000 while the firm retains $2,000.

Profit Target

The minimum amount of profit a trader must achieve to complete an evaluation phase or, in some programmes, qualify for a higher funding level.

Example: An 8% profit target on a $100K evaluation requires the account to reach $108K, assuming all other requirements have been satisfied.

Proprietary Trading

The practice of trading financial instruments with a firm's own capital rather than managing or investing money on behalf of external clients. It forms the foundation of the traditional proprietary trading business model.

Quantitative Trading

A trading approach that uses mathematical models, statistical methods, algorithms, and large datasets to identify and execute market opportunities. It is a core methodology used by many institutional and quantitative prop firms.

Example: Two Sigma applies machine learning, statistical models, and large-scale data analysis to identify potential trading opportunities.

Qualified Trader

A trader who has successfully completed a firm's evaluation requirements and progressed to a funded account. Depending on the programme, qualified traders may become eligible for different account features, scaling opportunities, or payout terms.

Refund

The return of an evaluation or challenge fee after a trader satisfies specific conditions established by the prop firm, such as reaching a profit milestone or receiving a first payout.

Example: A prop firm may refund the original challenge fee when a trader receives their first profit split, subject to the firm's current terms.

Reset

The process of restarting an evaluation after the trader fails to meet its requirements. Some firms provide reset options at a reduced price, while others may require the trader to purchase another evaluation.

Reset Fee

The charge associated with restarting a failed evaluation instead of purchasing an entirely new challenge. This fee is often lower than the original evaluation price, although pricing varies by firm.

Risk Management

The methods and rules used to control potential losses and protect trading capital. Position sizing, stop-loss placement, drawdown limits, and exposure management are common components of a prop trader's risk-management framework.

Raw Spread

A pricing structure that reflects the underlying market spread with little or no additional broker markup, with trading costs often charged separately through commissions. Some prop firms offer raw-spread accounts combined with a commission per trade.

Scaling Plan

A prop firm's structured system for increasing a trader's account size after meeting defined performance, consistency, and risk-management milestones.

Example: The5ers may increase a trader's account through multiple growth stages, subject to the firm's current scaling rules.

Simulated Account

A trading account that replicates market conditions and trading execution without using real market capital. Many retail prop firms operate their evaluation and funded programmes in simulated environments.

Slippage

The difference between the expected execution price of an order and the actual price at which it is filled. Slippage is more common during periods of high volatility, rapid price movements, or limited liquidity.

Example: A trader places a buy order at 1.1000 but receives an execution at 1.1002 because the market moves quickly.

Stop Loss

An order designed to automatically close a position when the market reaches a predetermined price level, limiting the potential loss on that trade. Some prop firms require or restrict the use of stop-loss orders under their risk-management rules.

Swap

A financing charge or credit associated with holding certain positions overnight, commonly based on interest-rate differentials between currencies in forex trading. The amount and treatment vary by instrument and broker.

Swap-Free Account

A trading account that does not apply standard overnight swap charges or credits to eligible positions. These accounts are often associated with Islamic finance requirements and are sometimes referred to as Islamic accounts.

Tick

The smallest permitted price movement of a particular trading instrument. In futures markets, each tick has a specific monetary value determined by the contract specifications.

Example: One tick in the E-mini S&P 500 (ES) is 0.25 index points and is worth $12.50 per contract.

Time Limit

The maximum period a trader is given to complete an evaluation and satisfy its requirements. Depending on the programme, the deadline may be unlimited or may range from approximately 30 to 60 days.

Trailing Drawdown

A drawdown limit that moves upward as the account reaches higher values but does not move downward when the account declines. This allows the firm to protect accumulated gains while maintaining a maximum-loss threshold.

Example: If a $100K account has a $5K trailing drawdown and reaches $105K, the trailing floor may move to $100K, depending on the firm's calculation method.

Two-Step Evaluation

An evaluation structure requiring traders to complete two separate phases, each with its own performance and risk requirements, before qualifying for funding.

Example: Phase 1 may require an 8% profit target and Phase 2 a 5% target, with both phases subject to a 10% maximum drawdown.

Trade Copier

Software that automatically replicates trades from one trading account to one or more other accounts. Prop firms have different policies regarding trade copiers, including restrictions on copying between accounts owned by the same trader.

Verification

A second evaluation phase used by some two-step prop firm programmes to confirm that a trader can maintain consistent performance under a separate set of requirements. It typically has a lower profit target than the initial phase.

Virtual Profit

Profit generated within a simulated or demo trading environment rather than from actual market capital. Although the profit is not real market P&L, it may be used by the firm to determine a trader's eligibility for a payout under the programme's terms.

Volatility Filter

A rule or trading restriction designed to limit activity during periods of unusually high market volatility, often including major economic announcements. These restrictions are intended to reduce exposure to extreme price movements, slippage, and liquidity changes.

Volume Requirements

Minimum trading activity requirements that a trader must satisfy to complete an evaluation or qualify for certain account benefits or payouts. These requirements may involve a minimum number of trades, contracts, lots, or trading days.

Weekend Holding

Keeping an open position while the market is closed over the weekend. Some prop firms restrict or prohibit weekend holding because markets can reopen with significant price gaps caused by events that occur while trading is closed.

Example: Holding EUR/USD from Friday's close through Sunday's market open exposes the position to potential weekend price gaps.

Withdrawal

The process of requesting and receiving eligible profits from a funded trading account. Withdrawals are subject to the firm's specific requirements, which may include minimum amounts, waiting periods, payout schedules, consistency rules, and available payment methods.

Win Rate

The percentage of completed trades that result in a profit. Although win rate can provide useful information about a trading strategy, prop firms generally evaluate traders based on broader measures such as overall profitability, drawdown, consistency, and risk management.