Prop Firm Lingo: 20 Terms You Should Know Before You Start

Trading at prop firms involves a specialized vocabulary that can seem confusing to newcomers. Understanding this lingo early helps you navigate evaluation documents, community discussions, and your own trading plan with confidence. Here are 20 essential terms every prop firm trader should know.

1. Challenge/Evaluation

The trial period where you demonstrate your trading skills by meeting profit targets and abiding by risk rules to earn funding.

2. Funded Account

An account provided by the prop firm where you trade with company capital after successfully completing the challenge.

3. Profit Target

The specific profit percentage or amount you must reach during your evaluation to pass and get funded.

4. Drawdown

The maximum allowable loss in your account, often defined daily (daily drawdown) or overall (max drawdown).

5. Scaling Plan

A structured program allowing funded traders to increase their capital allocation as they achieve consistent profits.

6. Max Daily Loss

The largest amount you can lose in a single day without breaching the firm’s rules.

7. Trailing Drawdown

A loss limit that moves upward as your account grows but does not move down with losses, protecting your equity.

8. One-Step Challenge

A single-phase evaluation where you meet all criteria in one go before funding.

9. Two-Step Challenge

A multi-phase evaluation where passing the first phase qualifies you for a second, often live, phase.

10. Position Sizing

Determining how many contracts or shares to trade based on risk parameters.

11. Stop Loss

An order placed to automatically exit a trade to prevent further losses.

12. Risk Management

The process of controlling losses and protecting capital through position sizing, stop losses, and trade selection.

13. News Trading

Trading around scheduled economic releases or news events, often restricted by prop firms due to volatility.

14. Overtrading

Taking too many trades or risking too much, often leading to mistakes and drawdown breaches.

15. Demo Account

A simulated trading environment using virtual money to practice without real risk.

16. Live Account

A trading account with real capital, either your own or provided by the prop firm.

17. Reset

A paid opportunity to restart your challenge after failing or breaching rules.

18. Leverage

Using borrowed capital to increase trade size, which magnifies gains and losses.

19. Micro Contracts

Small contract sizes allowing lower capital requirements and risk control, useful for beginners.

20. Scaling Bonus

An additional incentive or reward paid when you increase your account size per the scaling plan.

How to Master Prop Firm Lingo

• Read your prop firm’s rulebook thoroughly.
• Participate in trader forums and community groups.
• Maintain a glossary for quick reference.
• Use the terms actively when journaling and planning trades.

Understanding prop firm lingo eliminates confusion and empowers you to trade confidently. Keep this glossary handy as you begin your journey toward becoming a funded trader.