This glossary explains the words you will meet in prop firm rules, dashboards and payout emails, in plain English. The 70 terms are grouped from A to Z, and the linked guides go deeper on drawdown, hidden rules, payouts and challenge types.
A
A-book
A broker model where client orders are passed to the real market or to a liquidity provider, so the broker earns from spreads and commissions rather than from client losses. Some prop firms copy the trades of selected funded traders into a real market, which in effect A-books them.
Account size
The starting balance of a challenge or funded account, such as $100,000. Profit targets and loss limits are percentages of it. You don't deposit this money; you pay a fee for access.
Activation fee
A one-off fee some programs charge after you pass, before the funded account starts. It is common at futures firms and in some 3-step programs, so add it to the price when you compare.
Add-on
A paid option at checkout that changes the rules of a program, such as a higher profit split, faster payouts or no minimum trading days.
Allocation cap
The maximum total account size one trader can hold across all accounts at a firm. Some firms count accounts that run identical trades toward the same cap.
B
B-book
A broker model where the broker keeps the other side of client trades in-house, so client losses become its revenue. Simulated prop accounts work differently: no order reaches a market, and the firm pays profitable traders from its own revenue.
Balance
Your account value from closed trades only. It ignores open trades; compare it with equity.
Best day rule
A consistency rule that limits your most profitable day to a share of your total profit, for example 50%. It can apply in the challenge, at payout time, or both.
Breach
Breaking a rule. A hard breach, such as hitting the daily or maximum loss, closes the account at once. A soft breach, such as a news-window trade at some firms, removes the profit from those trades but keeps the account open.
C
CFD
Short for contract for difference: a contract that pays the price change of an asset such as a currency pair, index or metal without you owning the asset. Most forex prop firms offer CFDs, usually in a simulated account.
Challenge
The paid test you must pass to get a funded account, also called an evaluation. It has a profit target and loss limits, and it comes in 1-step, 2-step and 3-step formats. Challenges are paid products and most buyers don't pass; see prop firm challenges explained.
Commission
A fee charged per lot traded, usually per round trip (opening and closing a position). Commissions reduce your profit and count toward the daily and maximum loss.
Consistency rule
A rule that limits how much of your profit can come from one day or one trade, or how much your trade sizes can vary. It can delay or reduce a payout without any loss limit being hit. See prop firm hidden rules.
Copy trading
Copying trades from one account to another, automatically or by hand. Copying between your own accounts at one firm is often allowed; copying other traders or signal groups is restricted at many firms.
D
Daily loss limit
The most you can lose in one trading day, also called daily drawdown, usually 4-5% of the account. It resets once a day at a set time, and it usually counts open losses as well as closed ones.
Discretion clause
A clause in the terms, often worded "at our sole discretion", that lets a firm deny a payout, close an account or change rules. What matters is how often a firm uses it and whether it explains its decisions.
Drawdown
A fall from an earlier, higher account value. In prop firm rules, maximum drawdown is the most your account may fall, measured from its starting balance or its peak, before it is closed. The main types compare like this on a $100,000 account with a 10% limit:
| Type | Where the floor sits |
|---|---|
| Static | Fixed at $90,000 |
| Trailing | $10,000 below your highest balance or equity, often locking at $100,000 |
| End-of-day trailing | Same, but updated only at the daily close |
| Relative | 10% below your highest balance or equity |
See prop firm drawdown explained for worked examples.
E
EA (expert advisor)
An automated trading program for MetaTrader, often called a bot. Most firms allow EAs but ban high-frequency and latency strategies, and many restrict popular third-party EAs that other customers also run.
End-of-day trailing drawdown
A trailing drawdown that moves the floor only once a day, based on your closing balance or equity. Peaks during the day don't raise it, but the floor still applies in real time.
Equity
Your balance plus or minus the profit or loss of open trades. Most loss limits are checked against equity in real time.
F
Funded account
The account you trade after passing a challenge or buying instant funding. At most firms it is simulated, and you are paid a share of its profit.
Futures prop firm
A prop firm that evaluates traders on futures contracts, such as stock index or oil futures. These firms usually charge a monthly fee and use a dollar-based trailing or end-of-day drawdown.
G
Gambling rule
A clause that lets a firm remove profit from trades it considers reckless, such as one oversized position, a large trade without a stop loss, or maximum size just before news.
Group trading
Several traders placing the same trades at the same time, for example from a signal group. Most firms ban it and can detect identical trades across accounts.
H
Hedging
Holding opposite positions to reduce risk. Hedging inside one account is often allowed, but opposite positions across two accounts, at one firm or two, are banned almost everywhere.
HFT (high-frequency trading)
Trading with a very high number of orders, usually by bots, with positions held for very short periods. Prop firms ban it because it exploits the simulated environment rather than the market.
Hidden Risk score
PropGrade's 0-10 rating of how likely you are to lose an account or payout to a rule you didn't expect, such as a consistency rule, lot cap or broad discretion clause. A higher score means more risk; see the firms with the lowest hidden risk.
High-water mark
The highest balance or equity your account has reached. Trailing and relative drawdowns are measured from it.
I
Inactivity rule
A rule that closes an account if you don't trade for a set period, commonly 30 days.
Instant funding
A program with no evaluation: you pay once and trade a funded account from day one. It costs more per dollar of account size and usually has tighter rules. See the best instant funding prop firms.
IP address rule
A rule about where you log in from. Logins through a VPN, from a country that doesn't match your ID, or from an address shared with another customer can trigger a review.
K
KYC (know your customer)
Identity verification, usually a photo ID, a selfie or video check and sometimes proof of address. Many firms run it after you pass, before the funded account or the first payout.
L
Latency arbitrage
Using a faster price feed to trade against a slower one, so profit comes from delay rather than from market direction. It is banned almost everywhere.
Leverage
How large a position you can open for each dollar of margin. For example, 1:100 means $1,000 of margin controls a $100,000 position. Prop firms often set lower leverage on indices, metals and crypto than on forex.
Liquidity provider
A bank or trading firm that streams prices and takes the other side of trades for brokers. Prop firms that copy trades into a real market do it through a broker and its liquidity providers.
Lot
The standard unit of position size. One standard lot of a currency pair is 100,000 units of the base currency; a mini lot is 0.1 lots and a micro lot is 0.01 lots.
M
Martingale
Raising position size after each loss so that one win recovers all earlier losses. Many firms restrict it, alone or combined with grid systems, under their gambling or high-risk rules.
Maximum loss
The most your account may lose before it is closed, also called maximum drawdown, typically 8-10% of the starting balance when it is static. Touching the resulting floor closes the account.
MetaTrader (MT4 and MT5)
Widely used trading platforms made by MetaQuotes. In February 2024, MetaQuotes began cutting off prop firms that used MetaTrader through brokers, and many firms moved to cTrader, DXtrade, Match-Trader or TradeLocker.
Minimum trading days
The fewest days you must trade before you can pass a phase or request a payout, usually between zero and five.
N
News window
A period around high-impact economic releases, commonly 2 to 5 minutes before and after, when some firms ban opening or closing trades on funded accounts.
O
Overnight holding
Keeping a position open past the daily close. Most CFD firms allow it, while some futures programs and some instant accounts require you to be flat at the end of each session.
P
Pass rate
The share of challenge attempts that reach a funded account. Few firms publish it and definitions vary, so on our list of prop firms with the highest pass rates each figure is labeled Reported, Third-party or Estimate.
Payout
A transfer of your share of funded-account profit to you. See prop firm payouts explained.
Payout buffer
A level your account must stay above before you can withdraw, such as the starting balance plus a set amount. Only profit above it can be paid out.
Payout cycle
How often you can request a payout, such as weekly, every 14 days or monthly. The first cycle often starts with your first funded trade.
Phase
One stage of a challenge. A 2-step challenge has phase 1, sometimes called the challenge, and phase 2, often called the verification.
Pip
The standard price step for currency pairs: 0.0001 for most pairs and 0.01 for yen pairs. On a standard lot of a pair quoted in US dollars, one pip is worth $10.
Profit split
The share of funded-account profit you keep, typically 80%, and up to 90-100% with scaling plans or add-ons.
Profit target
The profit you must reach to pass a phase, such as 10%, or $10,000 on a $100,000 account.
Prop firm
Short for proprietary trading firm. Retail prop firms sell evaluations and pay traders a share of profits on funded, usually simulated, accounts. See what is a prop firm.
R
Refundable fee
An evaluation fee the firm pays back, usually with your first payout. If you never reach a payout, it is not refunded.
Relative drawdown
A maximum loss measured as a percentage of your highest balance or equity, so the dollar cushion grows with the account. Some firms use the term for ordinary trailing drawdown, so check the firm's definition.
Reset
Paying, usually a discounted fee, to restart an account at its starting balance after a breach, or at some firms before one.
Retry
A discounted new attempt offered after you fail a challenge, sometimes called a retake.
Risk per trade
The amount you would lose if a trade hits its stop loss, usually stated as a percentage of the account. Some funded accounts cap it, often at 1-3% of the starting balance per trade idea.
S
Scaling plan
A firm's rules for increasing your account size, usually after a set period and a set profit. Some plans also raise your profit split.
Simulated account
A demo account with virtual money that follows real market prices. Most CFD prop firms run funded accounts this way and pay your profit share from their own funds.
Slippage
The difference between the price you expected and the price you got. It is larger in fast markets and around news, and it can push a loss past your planned stop.
Spread
The difference between the buy (ask) and sell (bid) price. Spreads widen at the daily rollover and around news, which raises your costs.
Static drawdown
A maximum loss fixed to your starting balance that never moves, such as a $90,000 floor on a $100,000 account.
Stop loss
An order that closes a trade automatically at a set loss. Some firms require a stop loss on every trade.
Swap
The overnight fee or credit for holding a position past the daily rollover. It counts toward your profit and loss.
T
Tick scalping
Opening and closing trades within seconds to capture tiny price moves. Many firms ban it or set a minimum holding time.
Time limit
A deadline to reach the profit target. Most CFD firms have dropped them, but some programs, especially futures evaluations, still use windows such as 30 days.
Trader agreement
The contract you sign before trading a funded account. It sets out payouts, rules and the firm's rights, and it can contain terms that aren't shown on the sales page.
Trailing drawdown
A maximum loss that moves up with your highest balance or equity, usually until it reaches the starting balance. Open profit you give back reduces your room.
V
VPN
A service that hides your real IP address. Using one can make your login location look different from your KYC country and trigger a review.
VPS
A virtual private server, used to run EAs around the clock. Most firms allow a VPS as long as only you use it.
W
Weekend holding
Keeping positions open from Friday's close to the Sunday open. Some firms allow it, sometimes only on swing accounts, and price gaps at the open count against your drawdown.
FAQ
What is the difference between maximum drawdown and daily loss?
Maximum drawdown sets the lowest level your account may ever reach, while the daily loss limit caps how much you can lose in a single day. Touching either one closes the account. The daily limit resets every day; the maximum drawdown does not.
What does "funded account" mean at a prop firm?
It is the account you trade after passing a challenge or buying instant funding. At most firms it holds virtual money in a simulated environment, and you are paid a share of its profit. Only profit that has been paid out is real money in your hands.
What is the difference between A-book and B-book?
In an A-book model, a broker passes your trades to the market and earns from trading costs. In a B-book model, it keeps the other side, so your losses are its revenue. Simulated prop accounts are neither, because no trade reaches a market and payouts come from the firm's revenue.
What is a consistency rule in prop trading?
It limits how much of your total profit can come from one day or one trade, or how much your trade sizes can vary. A common version caps your best day at a set share of total profit, often between 20% and 50%, before a payout is approved.
What is a payout cycle?
It is how often you can request a payout, such as weekly, every 14 days or monthly. The first cycle usually starts with your first trade on the funded account.