QATSGlossary
Prop trading glossary
The terms you will meet when choosing a prop firm, explained in plain words.
- Prop firm
- A proprietary trading firm that gives traders access to its capital after they pass an evaluation. The trader keeps a share of the profit, and the firm sets the risk rules.
- Challenge (evaluation)
- A paid test account on which the trader must reach a profit target without breaking the loss limits. Passing it unlocks a funded account.
- 1-step and 2-step evaluation
- In a 1-step evaluation you pass one target and get funded. In a 2-step evaluation the target is split into two phases, each with a lower goal, which usually takes longer but can be easier per phase.
- Instant funding
- A program that gives a funded account straight away, without an evaluation. It usually costs more and has stricter limits.
- Funded account
- The account a trader receives after passing the challenge. Profits made on it are shared with the trader under the firm's payout rules. Many firms start funded traders on simulated capital.
- Profit target
- The profit you must reach to pass a phase of the challenge, shown as a percentage of the starting balance or as a dollar amount. For example, 10% on a $100K account means $10,000.
- Max loss (max drawdown)
- The total loss limit for the whole life of the account. If the equity falls below this level, the account is closed.
- Daily loss limit
- How much the account may lose within one trading day. Firms differ in whether they count it from the day's starting balance or equity and whether open trades count.
- Static drawdown
- A max loss limit fixed at the starting balance. It never moves, so profits give you more room above it.
- Trailing drawdown
- A max loss limit that moves up as the balance or equity reaches new highs. It protects the firm's capital but leaves the trader less room after a winning run.
- End-of-day (EOD) trailing
- A trailing drawdown that is recalculated only at the end of each trading day, not on every price tick. It is more forgiving than intraday trailing.
- Profit split
- The share of profit from a funded account that the trader keeps, for example 80% or 90%. Some firms raise the split over time or sell a higher split as an add-on.
- Consistency rule
- A rule that limits how much of the total profit may come from a single day, for example no more than 40%. It stops traders from passing on one lucky trade.
- Minimum trading days
- The fewest days on which you must place trades before you can pass a phase or request a payout.
- Activation fee
- A one-time fee some firms charge when you pass and open the funded account. Plans with an activation fee often have a lower challenge price.
- Reset
- Restarting a failed challenge for a fee, usually at a discount compared with buying a new one.
- Scaling plan
- A path to a larger account. After consistent profitable periods the firm increases the capital you trade.
- Payout
- A withdrawal of your share of the profit from the funded account. Firms set a minimum amount, a schedule and sometimes a number of winning days you need first.