Prop Trading Glossary: 30 Terms Every Beginner Needs

Prop firms speak their own dialect, and getting a term wrong can cost you an account. This is a plain-language glossary of the words you’ll actually meet in your first week — grouped by where you’ll run into them, defined the way a trader would explain them, not a legal team.

Exact thresholds behind these terms differ by firm and change over time, so treat the numbers you see marketed as starting points and confirm the current rules with your firm.

Account and evaluation terms

Prop firm — a company that funds traders with its own (usually simulated) capital in exchange for a share of the profits.
Evaluation / challenge — the test phase you pay to attempt; pass it and you earn a funded account.
One-step / two-step — how many evaluation phases stand between you and funding. One-step is a single target; two-step splits it across two stages.
Funded account — the account you trade after passing, on which real payouts are calculated.
Simulated / demo capital — most firms fund you on simulated accounts and pay you from company revenue, not from your trades hitting a live market.
Account size — the notional balance you’re evaluated on (e.g. a “50K account”); it sets your limits, not your withdrawable cash.
Reset — restarting a failed or breached evaluation, sometimes free, often for a fee.

Risk and drawdown terms

Drawdown — the decline in your account from a high-water mark; the core risk metric every firm polices.
Maximum drawdown — the absolute floor your equity can never touch, or the account fails.
Static drawdown — a fixed floor set at the start that never moves.
Trailing drawdown — a floor that follows your equity or balance upward as you profit, then locks. It’s the one that surprises new traders most — see the trailing drawdown explainer.
End-of-day drawdown — a trailing floor that only recalculates on the daily close, based on your end-of-day balance rather than intraday peaks.
Daily loss limit — the most you can lose in a single session before the account is failed; usually the first wall traders hit.
High-water mark — the highest equity or balance the account has reached, which trailing calculations track from.
Breach — violating any hard rule (drawdown, daily loss), which ends the account.

Payout and profit-split terms

Profit split — the percentage of trading profit you keep versus the firm; commonly ranges from around 80% up toward 100% depending on the firm and stage.
Payout / withdrawal — the actual money you take out of a funded account.
Payout schedule / cycle — how often you can withdraw (on demand, biweekly, monthly) and any minimum wait before the first one.
Profit target — the equity gain required to pass an evaluation phase.
Buffer — profit banked above the drawdown floor that gives you room to trade without risking a breach.
Scaling plan — the firm’s path to a larger account (and often a better split) as you show consistent results.
Activation fee — a one-time charge some firms apply before you can trade a funded account.

Rules and compliance terms

Consistency rule — a cap on how much of your total profit can come from a single day or trade, so results look steady rather than one lucky spike. Details vary; our consistency rule guide breaks down how it’s measured.
Minimum trading days — the fewest days you must trade before passing or withdrawing.
News trading restriction — limits or bans on holding positions through high-impact economic releases.
Prohibited strategies — approaches firms forbid, such as certain forms of arbitrage, copy-trading across unrelated accounts, or exploiting simulated-fill latency.
Overnight / weekend holding rules — whether positions can stay open past the session or into the weekend.
Trailing stop of the rule set — shorthand for the fact that rules can differ per account type; always read your specific agreement.

Platform and execution terms

R-multiple — a trade’s result measured in units of the risk you took, so a win and a loss share a common yardstick; start with the R-multiple primer.
Slippage — the gap between your expected fill price and the price you actually get, worse in fast markets.
Copier / copy trading — routing the same trades across multiple accounts at once; permitted within your own accounts on many firms but restricted across unrelated traders.
EA / expert advisor — an automated program that trades or enforces rules on a platform like MT5.

Two habits turn these definitions into real protection. First, know your own drawdown type cold before you trade. Second, keep an objective record — Shibiki auto-journals every fill and tracks live edge health per strategy, wrapping your win rate in a Wilson confidence interval so “I think I’m consistent” becomes something you can actually see, and its broker-side limits can hard-enforce a daily loss cap so a rule you understand on paper also holds in the heat of a session.