Prop Trading Glossary
51+ essential prop trading terms explained in plain English.
1
1-Step Challenge
An evaluation with a single phase. Traders must reach the profit target in one round to get funded. Typically faster but may have higher targets.
2
2-Step Challenge
An evaluation with two phases (e.g., Phase 1 and Phase 2) with different profit targets. The most common challenge type in the industry.
A
Affiliate Link
A tracked URL that credits HNL Growth when you sign up through our site. You get exclusive discounts, and it supports our free content.
B
Balance
The amount of money in your trading account excluding unrealized trades. Only updates when trades are closed.
C
Challenge
Another term for evaluation. Most prop firms use 1-step or 2-step challenges to assess trader skill before providing funded capital.
Consistency Rule
A rule requiring traders to maintain consistent daily profits without large spikes. Prevents strategies that rely on one lucky trade.
Challenge Fee
The upfront cost to participate in a prop firm evaluation. Ranges from $50 to $1000+ depending on account size and firm.
Commission
A fee charged per trade (usually per lot). Some firms have zero commissions but wider spreads, while others charge per-lot fees.
cTrader
An advanced trading platform known for fast execution, depth of market, and algo trading features. Popular with experienced traders.
CFD
Contract for Difference — a derivative that mirrors the price of an underlying asset. Most forex prop firms trade CFDs, not actual currencies.
D
Daily Drawdown
The maximum loss allowed in a single trading day, calculated from the starting balance or highest equity of that day. Usually 3-5%.
Drawdown
The peak-to-trough decline in account value. In prop trading, drawdown limits are strict rules that must not be violated.
E
Evaluation
A test period where traders must meet specific profit targets while staying within drawdown limits to qualify for a funded account.
EA (Expert Advisor)
An automated trading program (bot) that executes trades based on coded algorithms. Many prop firms allow EAs, but some restrict certain types.
Equity
The current value of your trading account including unrealized profits/losses. Drawdown limits are often calculated based on equity.
Economic Calendar
A schedule of upcoming economic data releases and events that may impact financial markets (NFP, CPI, FOMC, etc.).
F
Funded Account
A trading account provided by a prop firm after passing an evaluation. The firm provides the capital, and you trade with their money.
Forex
The foreign exchange market where currencies are traded. The largest financial market by daily volume ($6.6T+). Most prop firms offer forex trading.
Futures
Contracts to buy or sell an asset at a future date and price. Traded on exchanges like CME Group. Some prop firms specialize in futures.
I
Instant Funding
A program where traders get a funded account immediately without passing an evaluation. Higher fees but no challenge required.
Indices
Stock market indexes like S&P 500, NASDAQ, DAX, FTSE. Traded as CFDs at most prop firms. Popular for their volatility and liquidity.
L
Leverage
The ratio of borrowed capital to your own. 1:100 leverage means you control $100,000 with $1,000 in margin. Higher leverage = more risk and reward.
Lot Size
The number of units in a trade. Standard lot = 100,000 units, Mini lot = 10,000, Micro lot = 1,000.
M
Max Drawdown
The maximum total loss allowed on the account from the initial balance. Exceeding this results in account termination. Usually 6-10%.
Max Allocation
The maximum funded capital a trader can access through a prop firm, often achievable via scaling plans. Can range from $100K to $4M.
Minimum Trading Days
The minimum number of days a trader must actively trade during the evaluation period. Ensures consistent engagement, not one-time luck.
Margin
The amount of capital required to open and maintain a trading position. Determined by leverage ratio.
MT4 (MetaTrader 4)
One of the most popular trading platforms, widely supported by prop firms. Known for its simplicity and EA compatibility.
MT5 (MetaTrader 5)
The successor to MT4 with more features, timeframes, and order types. Increasingly required by modern prop firms.
N
News Trading
Trading during high-impact economic news events (e.g., NFP, CPI, FOMC). Some prop firms restrict or prohibit trading during these events.
O
Overnight Holding
Keeping a trade open past the daily market close. Some prop firms restrict this, while others allow it freely.
P
Prop Firm
A proprietary trading firm that provides capital to traders in exchange for a share of profits. Traders must pass evaluations to access funded accounts.
Profit Target
The percentage gain a trader must achieve during the evaluation period. Common targets are 8-10% for Phase 1 and 5% for Phase 2.
Profit Split
The percentage of trading profits that the trader keeps. Ranges typically from 50% to 100% depending on the firm and account level.
Payout
The withdrawal of earned profits from a funded account. Payout frequency varies by firm — weekly, bi-weekly, or on-demand.
Payout Methods
The ways profits can be withdrawn. Common methods include bank wire, cryptocurrency, PayPal, Wise, and Skrill.
Pip
The smallest price move in forex (0.0001 for most pairs). Used to measure profit/loss and spread. 1 pip on EUR/USD = $10 per standard lot.
R
Refundable Fee
When a prop firm refunds the challenge fee once a trader passes the evaluation and makes their first payout. Not all firms offer this.
Risk Management
The practice of controlling potential losses through position sizing, stop losses, and drawdown awareness. Critical for passing prop firm challenges.
Risk-Reward Ratio
The potential profit versus potential loss on a trade. A 1:2 ratio means risking $100 to potentially gain $200.
S
Scaling Plan
A program that increases your account size and/or profit split based on consistent performance. Allows traders to manage more capital over time.
Swap-Free Account
An account that does not charge overnight swap/rollover fees on positions held past the daily close. Also known as Islamic accounts.
Spread
The difference between the bid and ask price of a financial instrument. Lower spreads mean lower trading costs. Measured in pips.
Stop Loss
An order that automatically closes a trade at a predetermined loss level. Essential for risk management in prop firm trading.
Slippage
The difference between expected trade execution price and actual fill price. Can occur during high volatility or low liquidity periods.
T
Trailing Drawdown
A drawdown limit that follows your highest equity point. As your balance grows, the drawdown floor moves up, locking in some gains.
Time Limit
The maximum duration allowed to complete a challenge phase. Some firms have unlimited time, while others set 30-60 day deadlines.
Take Profit
An order that automatically closes a trade when it reaches a predetermined profit level.
Trading Platform
Software used to execute trades. Common platforms include MetaTrader 4/5, cTrader, TradingView, NinjaTrader, and DXTrade.
Trustpilot Score
A review rating from Trustpilot.com where real users rate their experience with prop firms. Scores range from 1 to 5 stars.
W
Weekend Holding
Keeping positions open over the weekend when markets are closed. Carries additional risk due to weekend gaps.
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