Trading & Prop Firm Glossary
Every term you'll encounter when trading and evaluating proprietary trading firms—from basic trading concepts to prop-firm-specific rules, explained in plain English.
Activation Fee
A one-time fee charged when you pass your evaluation and transition to a funded (live/sim) account. Not all firms charge one—Tradeify has zero activation. Typical range: $79-$248. Factor this into your total cost alongside the evaluation price.
Allocation (Max Allocation)
The total amount of capital a firm allows you to manage across all your funded accounts. Firms set limits like $500K, $1.5M, or $2.5M. Higher allocation means more potential profit. Some firms allow scaling beyond the initial cap.
Ask Price
The price at which you can buy an asset. Always slightly higher than the bid price—the difference is the spread. When you open a long (buy) position, you enter at the ask price.
ATR (Average True Range)
A technical indicator that measures market volatility by averaging the true range (high minus low, including gaps) over a set period, typically 14 candles. Higher ATR means more volatility. Useful for setting stop losses and profit targets relative to current market conditions.
Bid Price
The price at which you can sell an asset. Always slightly lower than the ask price. When you open a short (sell) position or close a long position, you exit at the bid price.
Breakout
When price moves decisively above resistance or below support, exiting a consolidation range. Breakout traders enter when the move starts, aiming to ride momentum. False breakouts (fakeouts) occur when price breaks out then reverses back into the range.
Broker
A company that provides access to financial markets. In forex prop trading, the broker is the firm's liquidity provider—you don't choose your own broker. In futures, firms connect through data feeds like Rithmic to exchanges like CME.
Buffer Zone
A profit threshold you must reach before you can request a payout on funded accounts. The buffer acts as a safety net—typically equal to the drawdown limit. Once you clear the buffer, you can withdraw profits above it.
Candlestick
A chart element showing an asset's open, high, low, and close for a specific time period. The body shows the open-to-close range; the wicks show the high and low. Green/white candles close higher than they opened; red/black candles close lower. Candlestick patterns (doji, engulfing, pin bar) are used in technical analysis.
CFD (Contract for Difference)
A derivative product that lets you speculate on price movements without owning the underlying asset. Most forex prop firms use CFDs. You profit or lose based on the difference between your entry and exit price, multiplied by your position size.
Challenge (Evaluation)
The test phase where you trade a demo/sim account to prove your skill before receiving funded capital. You must hit a profit target without breaching drawdown rules. Challenges come in 1-Step, 2-Step, or 3-Step formats. See also: Evaluation.
Commission
A fee charged per trade, usually expressed as a dollar amount per lot round trip (opening + closing). Typical forex commissions: $5-$7 per standard lot round trip. Futures commissions vary by platform. Some firms like ThinkCapital offer zero commission.
Consistency Rule
A rule that limits how much profit any single trading day can contribute to your total. Expressed as a percentage (e.g., 30% means no single day can exceed 30% of total profit). Firms with no consistency rule give you more trading freedom. Use our Consistency Calculator to check your history.
Copy Trading
Using software to automatically replicate trades from one account to another. Some prop firms allow copy trading between your own accounts; most prohibit copying from other traders. Check each firm's rules before using copy trading tools.
Daily Loss Limit (DLL)
The maximum amount you can lose in a single trading day. If your losses hit this threshold, trading is paused for the day or your account is breached. Typically 3-5% of account balance. Not all firms have this—some only use max drawdown.
Day Trading
Opening and closing all positions within the same trading day—no overnight holds. Most futures prop firms require day trading (positions must be flat before market close). Day traders focus on short-term price movements within a single session.
Drawdown (Max Drawdown)
The maximum total loss allowed on your account before it's breached (terminated). Different from daily loss limit—drawdown tracks cumulative losses over the life of the account. The three main types are Static, EOD Trailing, and Intraday Trailing.
EA (Expert Advisor)
Automated trading software that executes trades based on pre-programmed rules. Also called bots or algos. Some prop firms fully allow EAs, others restrict them to evaluation only, and some ban them entirely. See our scalpers guide for EA-friendly firms.
EOD Trailing Drawdown
A drawdown type that only recalculates at market close (end of day), not in real-time. If your account peaks at $105,000 during the day but closes at $102,000, the drawdown trails from $102,000—not the intraday high. Generally more forgiving than intraday trailing.
Equity
Your account balance plus or minus any unrealised (open) profit or loss. If your balance is $100,000 and you have an open trade at -$500, your equity is $99,500. Drawdown calculations often use equity, not just closed balance—so even unrealised losses count.
Evaluation
The process of proving your trading skill to a prop firm before receiving funded capital. You trade a demo account with real rules (drawdown, targets). Evaluations can be 1-Step (one phase), 2-Step (two phases), or 3-Step (three phases). Passing means you move to a funded account.
Fibonacci Retracement
A technical tool that draws horizontal lines at key percentage levels (23.6%, 38.2%, 50%, 61.8%, 78.6%) between a swing high and swing low. Traders use these levels to identify potential support and resistance zones where price may reverse or pause.
Forex (FX)
The foreign exchange market where currencies are traded in pairs (EUR/USD, GBP/JPY). The largest financial market by volume. Most prop firm evaluations are for forex trading. See all forex prop firms or compare them.
Funded Account
The account you receive after passing an evaluation. You trade with the firm's capital and keep a percentage of profits (the profit split). Can be a simulated account that mirrors live markets or, rarely, a real live account.
Fundamental Analysis
Analysing economic data, central bank decisions, and geopolitical events to predict price movements. Examples: trading based on NFP jobs data, CPI inflation reports, or interest rate decisions. Contrasts with technical analysis. Track events on our Economic Calendar.
Futures
Standardised contracts to buy or sell an asset at a set price on a future date, traded on exchanges like the CME. Popular futures include NQ (Nasdaq), ES (S&P 500), YM (Dow), and CL (Crude Oil). Futures prop firms are separate from forex firms. See all futures prop firms.
Gap
When price opens significantly higher or lower than the previous close, leaving a visible "gap" on the chart. Common after weekends and major news events. Gaps can cause slippage on stop losses. Some traders specifically trade gap fills (expecting price to return to the pre-gap level).
Hard Breach
When your account hits the maximum drawdown limit and is permanently closed. You lose the account and must purchase a new evaluation to try again. Some firms like Ment Funding offer "hard breach protection"—they still pay out your profits even if you breach while in profit.
Hold Time (Minimum Hold Time)
The minimum duration a trade must be open before closing. Some firms require trades to be held for 30 seconds, 1 minute, or 2 minutes to prevent ultra-fast scalping. Firms with no hold time allow any trade duration—important for scalpers.
Index (Indices)
A basket of stocks that represents a segment of the market. Popular indices: S&P 500 (ES), Nasdaq 100 (NQ), Dow Jones (YM), FTSE 100, DAX 40. Traded as futures contracts or CFDs. Many prop firms allow index trading alongside forex.
Instant Funding
A program that skips the evaluation phase entirely—you get a funded account immediately after purchase. Typically more expensive than evaluation accounts and may have lower profit splits or stricter rules. Offered by firms like CTI, Blue Guardian, and FundingPips.
Intraday Trailing Drawdown
The most aggressive drawdown type—it trails your equity in real-time throughout the trading day. If your account peaks at $103,000 even briefly, the drawdown immediately locks in from that high. This is the hardest drawdown to manage and can catch traders off guard during volatile moves.
Leverage
The ratio of trading power to account balance. A 1:30 leverage on a $100K account lets you control $3M in positions. Higher leverage means more potential profit but also more risk. Forex firms typically offer 1:30 to 1:100. Futures leverage is built into contract sizing.
Limit Order
An order to buy or sell at a specific price or better. A buy limit is placed below current price; a sell limit is placed above. Only executes if the market reaches your price. Contrasts with market orders which execute immediately at the current price.
Liquidity
How easily an asset can be bought or sold without significantly moving the price. High liquidity = tight spreads and fast fills (EUR/USD during London session). Low liquidity = wider spreads and potential slippage (exotic pairs, off-hours). Prop firm evaluations are easier in high-liquidity conditions.
Live Funded
A funded account that trades with real capital routed to an exchange, as opposed to a simulated account. Most prop firms use sim-funded accounts that mirror live markets. A few firms (like Top One Futures after 3 payouts) offer a path to live-funded accounts.
Long (Going Long)
Buying an asset with the expectation that its price will rise. You profit when price goes up, lose when it goes down. Opposite of short. In forex, going long EUR/USD means buying euros and selling dollars.
Lot Size
The unit of measurement for trade size in forex. A standard lot = 100,000 units of base currency. A mini lot = 10,000 units. A micro lot = 1,000 units. Lot size directly determines your profit/loss per pip. Use our Forex Calculator to calculate lot sizes for your risk.
Margin
The amount of capital required to open and maintain a leveraged position. Think of it as a deposit—not a fee. If your account doesn't have enough margin, you'll get a margin call (forced closure of positions). In prop trading, drawdown limits effectively replace margin calls.
Market Order
An order to buy or sell immediately at the best available price. Guarantees execution but not price—you may experience slippage during volatile conditions. Use for entries where speed matters more than exact price.
Max Contracts (Minis / Micros)
The maximum number of futures contracts you can hold simultaneously. Expressed as minis and micros (1 mini = 10 micros). A 100K account might allow 8 minis / 80 micros. Exceeding the limit can breach your account. Use our Futures Calculator to plan position sizes.
Minimum Trading Days
The minimum number of days you must actively trade before passing an evaluation or requesting a payout. Typically 3-10 days. A "trading day" usually means at least one trade was opened and closed that day.
Moving Average (MA)
A technical indicator that smooths price data into a single line by averaging prices over a set period. SMA (Simple Moving Average) weights all prices equally. EMA (Exponential Moving Average) weights recent prices more heavily. Common periods: 9, 20, 50, 200. Used to identify trends and dynamic support/resistance.
News Trading
Trading around high-impact economic events (NFP, CPI, FOMC, ECB). Some firms allow it freely, others prohibit trading within 2 minutes of major news events, and some only allow it on specific account types. Check the Economic Calendar for upcoming events.
On-Demand Payout
A payout you can request at any time (subject to minimum requirements) rather than waiting for a fixed schedule. Gives you more control over when you withdraw profits. Some firms charge a fee or require a consistency score for on-demand payouts.
One-Step (1-Step) Evaluation
An evaluation with a single phase—hit the profit target without breaching drawdown, and you're funded. Faster than 2-Step or 3-Step but usually has tighter drawdown rules or higher targets. Popular for experienced traders who want quick funding.
OTP (One-Time Payment)
A single upfront payment for an evaluation, as opposed to a monthly subscription. Most forex firms use OTP. Futures firms often use monthly subscriptions. OTP is cheaper if you pass quickly; subscriptions are better if you need multiple months.
Overnight / Weekend Holding
Keeping positions open past market close (overnight) or through the weekend. Many futures firms prohibit this. Forex firms vary—some require a special "Swing" account type. See our swing traders guide for firms that allow it.
Payout
The process of withdrawing your earned profits from a funded account. Payout schedules vary: daily, weekly, bi-weekly (every 14 days), monthly, or on-demand. Common methods include bank transfer, crypto (USDT/USDC), Riseworks, Rise, Skrill, and PayPal.
Pip
The smallest standard price movement in forex—typically the 4th decimal place (0.0001) for most pairs, or the 2nd decimal (0.01) for JPY pairs. A "pipette" is 1/10th of a pip (5th decimal). Pip value depends on lot size and pair. Use our Forex Calculator to calculate pip values.
Position Size
The amount of an asset you buy or sell in a single trade, calculated based on your risk tolerance, stop loss distance, and account size. Proper position sizing is the foundation of risk management. Use our Forex Calculator or Futures Calculator to calculate yours.
Profit Split
The percentage of trading profits you keep. The rest goes to the firm. Common ranges: 75-100%. Some firms start lower (80%) and scale up to 100% through milestones. See our highest profit split guide for firms offering 100%.
Profit Target
The profit amount you must reach to pass an evaluation phase. Expressed as a percentage of account size or dollar amount. Typical targets: 5-10% for 1-Step, 8%-5% for 2-Step (Phase 1 then Phase 2). Lower targets are easier to hit but may come with tighter drawdown.
Prop Firm (Proprietary Trading Firm)
A company that provides traders with capital to trade in exchange for a share of profits. Traders pass an evaluation to prove their skill, then receive a funded account. The firm provides the capital; you provide the trading. Browse all firms on our forex and futures pages.
Resistance
A price level where selling pressure has historically prevented price from moving higher. The ceiling on a chart. When price approaches resistance, it often reverses or consolidates. A break above resistance can signal a breakout. Opposite of support.
Restricted Countries
Countries whose residents cannot use a particular prop firm. Restrictions vary widely—some firms ban 5 countries, others ban 75+. Always check a firm's restricted list before purchasing. Our location guides (India, Africa, Australia) identify which firms accept traders from each region.
Rithmic
A data feed and order routing platform used by most futures prop firms. Rithmic connects to CME and other exchanges. Compatible platforms include NinjaTrader, Quantower, Sierra Chart, and others. Some firms also offer Tradovate as an alternative.
Riseworks / Rise
Payment platforms used by many prop firms to process international payouts. Riseworks and Rise Pay support transfers to most countries worldwide. Common payout fees range from $25-$50 per transaction. Used by firms like FundingPips, Ment Funding, The5ers, and Top One Trader.
Risk-Reward Ratio (RR)
The ratio of potential loss to potential profit on a trade. A 1:2 RR means you risk $100 to make $200. Higher RR ratios mean you can be profitable with a lower win rate. Most prop firm traders aim for at least 1:1.5 or 1:2. Critical for passing evaluations within drawdown limits.
Scalping
A trading style that aims for small, frequent profits from tiny price movements—often holding trades for seconds to minutes. Requires fast execution and tight spreads. Some prop firms restrict scalping with minimum hold time rules. See our scalpers guide for EA-friendly firms.
Scaling Plan
A program that increases your account size and/or profit split over time when you meet certain milestones (profit targets, number of payouts). Scaling lets you grow from a 100K account to 200K, 500K, or even $2M+ without buying a new evaluation.
Short (Going Short)
Selling an asset with the expectation that its price will fall—you profit when price goes down. Opposite of long. In forex, shorting EUR/USD means selling euros and buying dollars. In futures, you can go short just as easily as long.
Sim-Funded
A funded account that uses simulated (demo) trading on live market data, rather than routing orders to a real exchange. Most prop firm "funded" accounts are sim-funded. Your profits are still real and paid out—the trading itself is just simulated against live prices.
Slippage
The difference between the price you expected and the price your order was actually filled at. Happens during high volatility or low liquidity. Can work for or against you. Market orders are more prone to slippage than limit orders. Most common during news events and market opens.
Spread
The difference between the bid and ask price. Your hidden trading cost—every trade starts slightly in the red because of the spread. Tighter spreads = lower cost. Majors like EUR/USD typically have 0.1-1.0 pip spreads; exotics can have 10+ pip spreads.
Static Drawdown
A drawdown level that never moves, regardless of how much profit you make. If your 100K account has $3,000 static drawdown, your breach level is always $97,000—even if your balance grows to $110,000. The safest drawdown type for traders.
Stop Loss (SL)
An order that automatically closes your position at a specified price to limit losses. The most important risk management tool. Place your stop loss before entering any trade. In prop trading, proper stop loss placement is critical to staying within daily loss limits and max drawdown.
Support
A price level where buying pressure has historically prevented price from moving lower. The floor on a chart. When price approaches support, it often bounces. A break below support can signal further downside. Opposite of resistance.
Swap Fee
An interest charge (or credit) applied nightly for holding forex positions overnight. Depends on the currency pair and direction. Over multiple days, swaps can significantly impact profits—especially for swing traders. Some firms offer swap-free (Islamic) accounts.
Swing Trading
A trading style that holds positions for days to weeks, capturing larger price swings. Requires overnight and weekend holding—not all prop firms allow this. See our swing traders guide for firms with swing accounts.
Take Profit (TP)
An order that automatically closes your position at a specified price to lock in profits. Set before entering a trade alongside your stop loss. The distance between your entry and take profit determines your reward in the risk-reward ratio.
Technical Analysis
Analysing price charts, patterns, and indicators to predict future price movements. Includes tools like moving averages, Fibonacci, support/resistance, candlestick patterns, and oscillators like RSI. Most prop firm traders rely primarily on technical analysis.
Time Frame
The period each candlestick represents on a chart. Common time frames: 1-minute (M1), 5-minute (M5), 15-minute (M15), 1-hour (H1), 4-hour (H4), daily (D1), weekly (W1). Scalpers use M1-M5, day traders use M5-H1, swing traders use H4-D1. Most traders analyse multiple time frames.
Trailing Drawdown
A drawdown that moves up (trails) as your account balance or equity increases, but never moves back down. The two main types are EOD Trailing (updates at end of day) and Intraday Trailing (updates in real-time). More aggressive than static drawdown.
Trend
The general direction price is moving over time. An uptrend has higher highs and higher lows. A downtrend has lower highs and lower lows. "The trend is your friend"—trading with the trend is generally easier than against it. Use moving averages to identify trends.
Trustpilot Rating
A review score on Trustpilot.com where traders rate prop firms. Scores range from 1.0 to 5.0. We use Trustpilot ratings throughout our reviews as a trust indicator. Generally: 4.5+ is excellent, 4.0-4.4 is good, below 4.0 warrants caution.
Two-Step (2-Step) Evaluation
An evaluation with two phases. Phase 1 has a higher profit target (typically 8-10%), Phase 2 has a lower target (typically 5%). You must pass both without breaching drawdown. The most common evaluation format—usually offers wider drawdown than 1-Step.
Volatility
How much and how quickly price moves. High volatility = big moves, more opportunity but more risk. Low volatility = small moves, slower progress but safer. Measure with ATR. News events, session opens, and market shocks cause volatility spikes. Prop firm drawdown rules make high-volatility periods riskier.
Volume
The number of contracts or lots traded in a given period. High volume confirms price moves—a breakout on high volume is more reliable than one on low volume. Futures show real exchange volume; forex volume is typically tick-based (number of price changes) since there's no centralised exchange.
VPS (Virtual Private Server)
A remote server that runs your trading platform 24/7, regardless of your local internet connection. Essential for EA/bot traders and useful for anyone with unreliable internet. Most prop firms allow VPS usage—some require you to notify them.
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