Prop Firm Challenge Terms Glossary — 50+ Terms Explained

Prop firm challenges come with their own language. If you're new, terms like "drawdown," "consistency rule," and "profit split" can be confusing. Here's a complete glossary of every term you need to know.

A-C

Account Balance: The total amount of cash in your trading account, excluding open positions.

Aggregate Drawdown: The total decrease in your account from its highest point, across all trading days.

Challenge Fee: The upfront cost to purchase a prop firm evaluation. Ranges from ~$50 to $1,000+ depending on account size.

Consistency Rule: A rule that prevents any single trade from accounting for too much of your total profit. Usually capped at 30% of total gains.

Copy Trading: Automatically copying trades from another trader. Some firms allow this, some don't.

D-F

Daily Drawdown: The maximum loss allowed in a single trading day (usually 4-5% of starting balance).

Dashboard: The online portal where you manage your challenge, track progress, and request withdrawals.

Drawdown: A peak-to-trough decline in your account equity. The single most important metric in prop firm challenges.

Equity: Your account balance plus or minus the value of open positions. More important than balance during active trades.

Evaluation Phase: The challenge period where you must prove your trading ability to qualify for funding.

Free Test: An offer by some passing services (including @Voraspas) to pass a small challenge at no cost to prove their ability.

G-L

Gap Risk: The risk that price jumps overnight or over a weekend, potentially triggering drawdown limits.

KYC (Know Your Customer): Identity verification required by prop firms before payout. Usually involves ID and proof of address.

Leverage: The ability to control large positions with small capital. Most prop firms offer 1:30 to 1:100 leverage during evaluations.

Lot Size: A standardized trading size. 1 standard lot = 100,000 units of currency.

M-R

Max Drawdown: The absolute maximum loss allowed from your peak equity. Usually 5-12% depending on the firm.

One-Step Challenge: A challenge with a single evaluation phase. Hit the profit target and you're funded. Simpler structure.

Payout: The process of withdrawing profits from your funded account to your personal bank/crypto wallet.

Phase 1 / Phase 2: Two-step challenges require passing two phases. Phase 1 has a higher target (usually 8%), Phase 2 is lower (4%).

Profit Split: The percentage of profits you keep vs the prop firm. 80/20 means you keep 80%, firm keeps 20%.

S-Z

Scaling Plan: A program that allows funded traders to increase their account size after demonstrating consistent profitability.

Total Drawdown: The maximum cumulative loss allowed from your highest account value. Different from daily drawdown.

Trading Rules: The specific regulations governing what trading strategies and behaviors are allowed during the challenge.

Unlimited Time: A challenge with no time limit to hit the profit target. Lower pressure than fixed-time challenges.

Verification: Identity check performed by prop firms before allowing withdrawals.

Bookmark this page and come back anytime you encounter a term you don't recognize.