Prop Trading Glossary

Testing a trading strategy on historical data to evaluate its performance before risking real capital. Essential for strategy validation and refinement.

Drawdown calculated from your account balance (closed positions) rather than equity (including open positions).

Moving the stop loss to the entry price once a trade is profitable, ensuring no loss occurs even if the trade reverses. Common practice after reaching certain profit milestones.

Visual formations on price charts that signal potential reversals or continuations. Includes patterns like doji, engulfing, hammer, and shooting star.

A percentage of the challenge fee returned to the trader as a rebate after purchase.

The upfront cost to purchase a prop firm evaluation challenge.

A requirement that no single trading day accounts for more than a certain percentage of total profits.

A trading method where you automatically replicate trades from experienced signal providers in your own account.

Trading multiple instruments that move together or inversely. Understanding correlations helps avoid overexposure and creates hedging opportunities.

A modern trading platform known for superior order execution, advanced charting, and ECN-style trading environment.

Opening and closing all positions within a single trading day, never holding overnight. Requires active monitoring but eliminates overnight gap risk.

A practice trading account with simulated money used during evaluation phases.

The reduction in account equity from a peak to a trough, measured as a percentage. Prop firms enforce maximum drawdown limits to manage risk.

Drawdown calculated from your total equity including floating profit/loss on open positions.

The challenge period where traders must demonstrate their skills by meeting profit targets while respecting risk rules before receiving a funded account.

Automated trading software or trading robot that executes trades based on pre-programmed rules without manual intervention.

A technical tool identifying potential support and resistance levels based on Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%). Used to find entry points during pullbacks.

Testing a strategy on current market data in real-time without risking capital. More reliable than backtesting as it accounts for current market conditions.

Evaluating economic indicators, central bank policies, and geopolitical events to predict market direction. Complements technical analysis for comprehensive market understanding.

A live trading account provided by a prop firm after successfully passing their evaluation, where you trade with the firm's capital.

Placing multiple buy and sell orders at predetermined intervals above and below current price. Can violate consistency rules or maximum position limits.

Opening offsetting positions to reduce risk exposure. Some prop firms allow hedging while others prohibit it as it can mask true trading performance.

Programs that provide immediate access to funded accounts without requiring evaluation challenges, usually for higher fees or subscription costs.

The ratio of borrowed capital to your own capital, allowing you to control larger positions than your actual account balance.

A real funded trading account provided after passing evaluation where profits and losses are real.

Moving Average Convergence Divergence indicator showing the relationship between two moving averages. Generates trading signals through line crossovers and divergence.

Doubling position size after each loss to recover all previous losses with one win. Highly risky and prohibited by most prop firms due to extreme drawdown potential.

The maximum percentage or dollar amount your account can lose in a single trading day. Exceeding this limit terminates your account.

The maximum cumulative loss allowed from your starting balance throughout the entire evaluation period.

The largest peak-to-valley decline in account equity expressed as a percentage. Lower drawdowns indicate better risk management and strategy stability.

The maximum duration allowed to complete an evaluation phase before it expires.

A popular electronic trading platform widely used for forex trading, known for its extensive indicator library and EA support.

The successor to MT4, offering multi-asset trading, more timeframes, and improved backtesting capabilities.

The minimum number of days you must actively place trades before becoming eligible for payout or advancing to the next phase.

A technical indicator smoothing price data to identify trends. Common types include Simple Moving Average (SMA) and Exponential Moving Average (EMA).

Trading strategy focused on capitalizing on price volatility during major economic announcements like NFP, FOMC, or CPI releases.

A prop firm evaluation requiring only one phase to be completed before receiving a funded account. Typically has higher profit targets than 2-step programs.

Practice trading with simulated money to test strategies and build confidence without financial risk. Often used before attempting paid prop firm challenges.

The withdrawal of trading profits from your funded account to your personal bank account or payment method.

The first evaluation stage in a two-step challenge, typically requiring an 8-10% profit target.

The second and final evaluation stage in a two-step challenge, usually requiring a 4-5% profit target.

The process of calculating how much capital to risk on a trade based on account size, risk tolerance, and stop loss distance.

A long-term trading approach holding positions for weeks or months to capture major market trends. Less common in prop trading due to longer capital lockup.

Making decisions based solely on raw price movements without indicators. Focuses on support, resistance, candlestick patterns, and market structure.

The ratio of gross profits to gross losses. A profit factor above 1.5 is generally considered good, above 2.0 is excellent.

The percentage of trading profits you keep versus what the prop firm retains. Common splits range from 70-90% in favor of the trader.

The percentage gain you must achieve during evaluation phases to qualify for funding or advance to the next phase.

Trading methods explicitly banned by prop firms, often including hedging across accounts, arbitrage, or tick scalping.

A proprietary trading firm that provides capital to traders in exchange for a share of the profits generated.

Net profit divided by maximum drawdown. Higher values indicate better risk-adjusted returns and faster recovery from losses.

A challenge fee that is returned to the trader upon receiving their first payout from a funded account.

A momentum oscillator measuring the speed and magnitude of price changes on a 0-100 scale. Readings above 70 suggest overbought conditions, below 30 suggest oversold.

The practice of controlling potential losses through position sizing, stop losses, and portfolio diversification.

The maximum account percentage a trader is willing to lose on a single position. Conservative traders typically risk 0.5-1% per trade, while aggressive traders may risk 2-3%.

The relationship between potential profit and potential loss on a trade. A 1:3 ratio means risking $100 to potentially make $300.

The process of increasing account size based on consistent profitable performance.

A program allowing traders to increase their account size based on consistent profitability and adherence to rules.

A fixed drawdown limit based on your starting balance that never changes regardless of profits earned.

A predetermined price level at which a losing trade will automatically close to limit losses. Essential for risk management in prop trading.

Price levels where buying or selling pressure historically causes reversals or consolidation. Key concepts in technical analysis for entry and exit decisions.

A trading style holding positions for days or weeks to capture larger price movements. Popular in prop trading due to lower time commitment and reduced drawdown risk.

A predetermined price level at which a winning trade will automatically close to secure gains. Ensures traders lock in profits rather than watching winners turn into losers.

Using historical price data, chart patterns, and indicators to forecast future price movements. The primary analysis method for most prop traders.

Attempting to profit from minimal price movements, often holding positions for seconds. Frequently prohibited due to execution costs and abuse potential.

The specific restrictions and requirements set by prop firms that traders must follow to maintain their accounts.

A drawdown limit that moves up with your highest balance achieved but never moves down, protecting profits but requiring careful management.

A dynamic stop loss that moves with favorable price action, locking in profits while allowing winners to run. The stop follows at a set distance from the current price.

An evaluation program requiring traders to pass two separate phases (Phase 1 and Phase 2) before funding. Generally has lower per-phase profit targets.

The ability to hold trading positions open over the weekend when markets are closed.

The percentage of trades that close in profit. A 60% win rate means 6 out of 10 trades are winners. Important metric but must be considered alongside risk-reward ratio.