Trading glossary

Every prop-trading term, defined

61 plain-English definitions of challenge rules, risk metrics, and trading terms — each with the arithmetic that makes it matter inside an evaluation.

Challenge rules

Account breachA rule violation, usually crossing the daily loss limit or maximum drawdown, that terminates a challenge or… Account resetA paid option to restart a challenge account at its original balance and rules after a breach or deep drawd… Consistency ruleA rule capping the share of total profit any single trading day may contribute, commonly cited between 30%… Daily loss limitThe maximum loss allowed in a single trading day — commonly 4–5% of account size — before the account is br… End-of-day drawdownA drawdown limit evaluated only at each day's close, so intraday dips alone cannot breach the account. Evaluation phaseThe first phase of a prop firm challenge, commonly requiring an 8% gain without breaching daily or overall… Maximum drawdownThe overall loss limit — commonly 10% of starting balance — that a challenge or funded account may never cr… Minimum trading daysThe number of distinct days on which you must place at least one trade before a phase can be passed or a pa… Profit targetThe percentage gain — commonly 8%, then 5% — you must reach to pass each phase of a prop firm challenge. Prop firm challengeA paid evaluation in which you must hit a profit target without breaking loss rules to qualify for a funded… Refundable feeA challenge fee the firm returns after you reach the funded stage or receive a first payout; a breach forfe… Static drawdownA drawdown limit measured from the starting balance only; the breach floor stays fixed no matter how high e… Trailing drawdownA loss limit that rises with your equity high-water mark, so giving back gains can breach an account even a… Verification phaseThe second phase of a two-step challenge, with a reduced profit target — commonly 5% — under unchanged loss…

Funded accounts

Funded accountThe account a prop firm grants after you pass its evaluation, traded under firm rules in exchange for a sha… PayoutThe transfer of a funded trader's share of profits, typically requested on a fixed cycle such as every 14 o… Profit splitThe percentage of funded-account profits paid to the trader — commonly 75–90% — with the firm retaining the… Prop firmA company that gives traders access to its trading capital — or a simulation of it — in exchange for a shar… Scaling planA firm's schedule for increasing a funded account's size after sustained profitable trading over set review… Simulated funded accountA funded account run on simulated capital: trades never reach a live market, but profit splits are paid in…

Risk & money management

CorrelationThe degree to which two instruments move together; correlated positions combine into one larger bet on the… DrawdownThe decline from an equity peak to a subsequent low, measured in percent or currency; the core risk metric… ExpectancyThe average amount a strategy makes or loses per trade over many trades, combining win rate with average wi… One-percent ruleA risk guideline: never risk more than 1% of the account on any single trade. Position sizingChoosing how much to trade so that a losing trade costs a planned, fixed fraction of your account. Profit factorGross profit divided by gross loss across a set of trades; above 1.0 the strategy made money, below 1.0 it… R-multipleA trade's outcome expressed as a multiple of the amount risked: a $250 gain on $100 of risk is +2.5R; a sto… Risk-reward ratioThe ratio of what a trade loses if the stop is hit to what it makes if the target is hit; risking $100 for… Trading journalA structured record of every trade — setup, size, result, and reasoning — kept to expose and fix repeating… Win rateThe percentage of trades that close in profit: winners divided by total trades.

Trading basics

BacktestingTesting a strategy's rules against historical price data to estimate how they would have performed before r… Demo accountA practice account with virtual funds and live-like pricing, used to learn a platform and test strategies w… EquityThe real-time value of a trading account: balance plus or minus the floating profit and loss on open positi… Floating P&LThe unrealized profit or loss on open positions at current market prices; it becomes permanent only when a… LeverageBorrowed buying power that lets you control a position larger than your deposit, magnifying both profits an… Lot sizeThe standardized quantity of one trade. In forex, a standard lot is 100,000 units of the base currency; pip… MarginThe collateral locked while a leveraged position is open: the trade's notional value divided by the leverag… Paper tradingPracticing with simulated orders and virtual funds against real market prices, so strategies can be tested… PipThe standard unit of forex price movement, usually the fourth decimal place of a quote; worth about $10 per… Realized P&LThe profit or loss locked in when a position is closed; it permanently changes the account balance. Swap feeThe overnight financing charge or credit applied to a leveraged position held past the daily rollover. Trading sessionsThe Sydney, Tokyo, London and New York blocks of the 24-hour market day, each with its own liquidity and sp…

Orders & execution

Breakeven stopA stop-loss moved to the entry price after a trade moves in your favor, making the remaining worst case rou… Limit orderAn order to buy or sell at a specified price or better; it rests until the market reaches that price and ne… Market orderAn order that executes immediately at the best available price; the fill is guaranteed, the exact price is… SlippageThe difference between the price you requested and the price your order actually filled at, common in fast… SpreadThe difference between the bid and ask price of an instrument; the built-in cost of entering a trade at mar… Stop lossAn order attached to a position that closes it automatically at a preset price, capping the loss on that tr… Take profitAn order attached to a position that closes it automatically once price reaches a preset target, locking in… Tick sizeThe smallest price increment an instrument is allowed to move; each tick is worth a fixed dollar amount per…

Psychology

OvertradingTaking more trades, or larger trades, than your plan justifies — trading for activity or recovery rather th… Revenge tradingThe impulse to win back a loss immediately with bigger or unplanned trades, abandoning the strategy to eras… Trading planA written set of rules covering what you trade, when you enter and exit, how much you risk, and when you st…

Styles & strategies

Copy tradingAutomatically mirroring another account's trades; firms commonly allow copying your own accounts but prohib… Day tradingOpening and closing positions within the same trading session, so no exposure is carried overnight. HedgingOpening a position that offsets the risk of another — such as shorting an instrument you are long — freezin… High-frequency tradingAlgorithmic trading that submits large numbers of orders in milliseconds; prop firms ban it as an exploit o… MartingaleA staking method that increases size after each loss so a single win recovers the run; it collides quickly… News tradingTrading around scheduled economic releases; many prop firms restrict it on funded accounts with time window… ScalpingA trading style built on many short-lived trades that each aim to capture a few pips, holding for seconds t… Swing tradingA style that holds positions for days to weeks to capture larger moves, with fewer trades, wider stops, and…