Prop Trading Glossary

PropFlagger · Every term you need to know about prop trading challenges, rules, and risk

New to prop trading? This glossary explains every term you will encounter when comparing challenge programs, reading risk profiles, and evaluating funded trading firms.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Account Size: The notional trading capital allocated to a funded trader. A $100k account means you trade as if you had $100,000, though the prop firm retains the actual capital risk. Common sizes range from $5k to $200k, with some firms offering up to $1M–$4M through scaling plans.
Affiliate Link: A tracked URL that earns the referring website a commission when a visitor completes a purchase. PropFlagger uses affiliate links for some prop firms. See our Affiliate Disclosure for full details.
Benchmark: The industry standard for a given rule, established by reference to the leading prop firms. PropFlagger uses FTMO, FundingPips, and The5ers as benchmarks. For example, the benchmark for maximum drawdown is 10% (static EOD), and for daily drawdown is 5%.
Blow Account: To exceed the maximum drawdown limit, causing the challenge or funded account to be terminated. Losing a challenge through drawdown violation means losing the challenge fee (unless it was refundable).
Challenge: The evaluation phase(s) a trader must pass before receiving a funded account. A typical 2-Phase challenge requires hitting a profit target (e.g. 10%) while staying within drawdown limits, without violating any trading rules. Challenges have a one-time fee.
Challenge Fee: The upfront cost to enter a prop firm's evaluation. Fees vary widely by firm and account size — typically $50–$600 for standard challenges. Fees may be refundable upon successful completion at some firms.
Consistency Rule: A rule that limits how concentrated a trader's profits can be on any single trading day. For example, a "30% Best Day" rule means no single day's profit can exceed 30% of your total profits. These rules are widely considered a red flag as they restrict natural trading behavior and can cause account failures on winning days.
Copy Trading: A strategy where a trader automatically copies the trades of another trader. Many prop firms prohibit copy trading or restrict it (e.g. no copying between accounts at the same firm). Check a firm's specific policy before using copy trading services.
Daily Drawdown: The maximum loss allowed in a single trading day, calculated from either the day's opening balance or the highest intraday equity, depending on the firm. A 5% daily drawdown on a $100k account means you cannot lose more than $5,000 in one day. The benchmark is 5%.
Drawdown Type: How a firm calculates drawdown — the most important structural risk factor. See Static (EOD), Trailing, and Relative Drawdown. Trailing drawdown is the highest-risk type as the threshold follows your equity up but never comes back down.
DXTrade / MT4 / MT5 / cTrader: Common trading platforms used by prop firms. MetaTrader 4 (MT4) and MetaTrader 5 (MT5) are the most widely used. cTrader offers ECN-style execution. DXTrade is a web-based platform used by firms who prefer a broker-independent solution.
EA (Expert Advisor): An automated trading script for MetaTrader platforms. Many prop firms allow EAs; some ban them entirely; others allow only "non-HFT" or manually-based EAs. The EA policy is a key differentiator for algorithmic traders.
Evaluation Phase: A phase within a challenge where the trader must meet a profit target while observing all drawdown and trading rules. Standard challenges have 1–3 evaluation phases followed by a funded account. Instant funded accounts skip the evaluation phase entirely.
Fee Refund: A policy at some prop firms to refund the challenge fee when a trader passes and receives their first payout. The refund may be given as a first-payout bonus or as a direct return. "Partial refund" means only a portion is returned. Fee refundability is a strong positive indicator.
Funded Account: The trading account a trader receives after successfully passing all evaluation phases. The trader keeps a percentage of profits (the profit split) earned on this account. The firm bears the capital risk, not the trader.
HFT (High-Frequency Trading): A trading strategy using algorithms to execute large numbers of orders at very high speeds. Most prop firms ban HFT due to the strain it places on their infrastructure. Always verify a firm's HFT policy before using speed-dependent strategies.
Hidden Rules: Clauses in a firm's Terms of Service that contradict, restrict, or add conditions to what is stated in their challenge marketing. PropFlagger's editorial team reads Terms of Service documents to identify these clauses. They are a significant risk factor.
Instant Funded: A program where a trader receives a funded account without an evaluation phase. The trader pays a fee (usually recurring) and starts trading the funded account immediately. These programs often have lower profit splits or higher fees to compensate for the removed evaluation barrier.
Leverage: The ratio of trading exposure to account capital. 1:100 leverage means you can control $100,000 of positions with a $1,000 account. Higher leverage amplifies both gains and losses. Most prop firms offer 1:10 to 1:100 leverage depending on the instrument.
Max Drawdown: The maximum cumulative loss allowed from the starting or highest balance, depending on the drawdown type. A 10% max drawdown on a $100k account means the account is terminated if losses exceed $10,000 from the relevant reference point. The industry benchmark is 10%.
Minimum Trading Days: A requirement to trade for a minimum number of calendar days before a payout is considered. For example, "minimum 10 trading days" means you must place at least one trade on 10 separate days during a payout cycle. This prevents traders from getting lucky on a single day and immediately withdrawing.
News Trading: Trading around scheduled high-impact economic news events (e.g. NFP, interest rate decisions, CPI). Some prop firms ban news trading, others allow it. "Restricted" typically means trades placed within a window (e.g. 2 minutes) before or after a news event are prohibited.
Payout Denial: When a prop firm refuses to pay a trader's withdrawal request, typically citing a rule violation. Systematic payout denials — where a firm regularly denies legitimate payouts — is one of the strongest red flags. PropFlagger tracks community-reported payout denial patterns.
Profit Split: The percentage of trading profits a funded trader keeps. A 80% split means the trader receives 80 cents of every dollar profited. The remaining 20% goes to the prop firm. Industry benchmark is 80%. Splits below 70% are flagged as a red flag by PropFlagger.
Profit Target: The profit percentage a trader must achieve in an evaluation phase to advance to the next phase or funded account. A 10% Phase 1 target on a $100k account means the trader must profit $10,000. Targets above 12% are flagged by PropFlagger as they increase the pressure to overtrade.
PropFlagger Score: PropFlagger's composite rating from 0 to 10, combining the firm's Trustpilot rating, our Safety Score (derived from the Risk Score), and an Editorial Score. Higher is better. See our Methodology for full details.
Prop Firm: Short for "proprietary trading firm." In the funded challenge context, a prop firm provides traders with simulated or real trading capital through a paid evaluation process. The trader keeps a share of profits. Unlike traditional prop firms, challenge-based prop firms do not employ traders.
Red Flag: A rule or practice identified by PropFlagger as materially increasing the risk of account failure, payout difficulty, or financial loss for the trader. Examples: trailing drawdown, strict consistency rules, low profit splits, systematic payout denial reports.
Relative Drawdown: A drawdown type where the threshold is calculated as a percentage of the current balance (rather than a fixed dollar amount from starting capital). As your balance grows, the dollar loss limit increases proportionally. Less risky than trailing but more restrictive than static EOD.
Risk Score: PropFlagger's automated risk assessment from 0 to 10. Lower is better: 0–2 is low risk, 7–10 is extreme risk. Calculated by running 23 checks against published firm rules and benchmarks. See Our Methodology.
Scaling Plan: A structured plan that increases a funded trader's account size (and therefore profit potential) as they demonstrate consistent profitability. For example, passing 3 consecutive profitable months might increase a $50k account to $100k. Scaling plans are generally a positive feature.
Simulated Prop Firm: A prop firm where funded accounts trade in a simulated environment backed by the firm's risk model rather than live market capital. The trader's profits are real and paid by the firm from challenge fees and risk management. Most challenge-based prop firms operate this model.
Static Drawdown (EOD): End-of-day static drawdown — the safest and most trader-friendly drawdown type. The maximum loss threshold is fixed at a percentage of the initial or closing-day balance and never moves upward. A 10% drawdown on a $100k EOD-static account means you can lose up to $10,000 from your starting balance at any time.
Trailing Drawdown: The highest-risk drawdown type. The threshold follows your equity upward as you profit, but never comes back down if you lose. Example: with a $5k trailing drawdown on a $100k account, if you profit $3k (equity = $103k), your drawdown threshold is now $98k — not $95k. A strong reversal after a good run can wipe the account at the worst possible moment. PropFlagger always flags trailing drawdown as a critical risk.
Two-Phase Challenge: The most common evaluation structure. Phase 1 requires hitting a profit target (e.g. 10%) with a strict drawdown. Phase 2 requires a smaller target (e.g. 5%) with the same drawdown limits. Passing both earns a funded account.
Weekend Holding: Whether a trader is permitted to hold open positions over the weekend (Friday close to Sunday open). Some prop firms prohibit this due to gap risk. Traders using swing strategies or who trade markets that are active over the weekend should verify a firm's weekend holding policy.

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