Prop Trading Glossary: Every Term You Need to Know

Account Breach

When a trader violates any funded-stage rule — exceeding max drawdown, hitting the daily loss limit, breaking a trading restriction — causing the account to be terminated. The challenge fee is forfeited and all open positions are closed. Most firms offer no appeal process for a breach.

A-Book Execution

A trade routing model in which the firm passes your trades directly to the interbank or institutional liquidity market. The firm earns through spreads and commissions only and does not profit from your losses. A-book firms are structurally aligned with your success, since profitable active traders generate ongoing fee revenue. Firms that publicly disclose a regulated broker partner are most likely operating A-book or hybrid execution.

Averaging Down

The practice of adding more positions to a losing trade in order to lower your overall average entry price. For example, buying at 1.1000, then buying again at 1.0950 so your average entry is 1.0975. Many prop firms restrict this through DCA bans or One-Sided Bet rules. See also: DCA, One-Sided Bet.

B-Book Execution

A model in which the firm internalises your trades, taking the opposite side rather than routing to the market. When you lose, the firm profits directly. When you win, the firm pays from its own book. B-book firms have a structural conflict of interest with their traders. Most prop firms that do not disclose a regulated broker are operating B-book. B-book is not inherently fraudulent, but it creates incentives for firms to design rules that increase trader failure rates.

Balance-Based Drawdown

See: Static Drawdown.

Best-Day Rule

A funded-stage restriction that caps the percentage of total profit that can come from any single trading day. Typical thresholds are 30–50%. If your best day accounts for more than the permitted percentage of your total cycle profit, your eligible profit is recalculated — potentially blocking your withdrawal or resetting your cycle. This rule is designed to prevent traders from making one large trade and immediately withdrawing, but it also penalises high-conviction trading strategies.

Breach

See: Account Breach.

Challenge Fee

The upfront cost a trader pays to enter a prop firm evaluation. Fees typically range from $50 to over $1,000 depending on account size. The fee is non-refundable in most cases unless the firm offers a fee-refund program on first successful payout. Some firms allow unlimited retakes of failed challenges for a reduced repeated fee.

Consistency Rule

A funded-stage requirement that your profits must be distributed relatively evenly across trading sessions. Firms measure this using a consistency score. High concentration of profit in one or two sessions may fail the threshold even with net-positive returns. Consistency rules disadvantage traders who trade selectively and prefer fewer, higher-quality setups. See also: Consistency Score, Best-Day Rule.

Consistency Score

A metric automatically calculated by firms with consistency requirements. Based on the statistical variance of your daily P&L across the trading cycle. A score below the minimum threshold can block a payout request regardless of profitability or rule compliance in all other areas. Not all firms disclose the exact calculation method used.

Copy Trading

A strategy in which a trader automatically mirrors the positions of another trader's account. Some prop firms explicitly ban copy trading or social trading platforms. Check whether your firm permits this before connecting any copy service to your funded account.

Cycle

The minimum time or trading period that must complete before a payout is eligible. Typically 14 or 30 calendar days from account start date or last withdrawal. Cycles reset on payout in some firms. See also: Withdrawal Cycle.

Daily Loss Limit

A hard cap on the maximum loss permitted in a single trading day, usually 3–5% of starting balance. Breaching the daily loss limit terminates the account immediately, regardless of where cumulative losses stand against the max drawdown threshold. This limit applies to realised losses; some firms also count floating unrealised losses toward the daily limit. Particularly dangerous on high-impact news events or when positions are held through market open gaps.

DCA (Dollar Cost Averaging)

An entry strategy that involves opening multiple positions at different price levels to achieve a lower average entry cost. Rather than entering a full position at a single price, a trader adds to the position in increments as the market moves. DCA reduces the risk of entering at the worst possible price and can reduce emotional trading pressure. It is one of the most widely used methods in professional trading. Many prop firms ban DCA because it can rapidly increase open exposure — though the reason is often related to B-book risk management rather than trader protection.

Drawdown

The maximum permitted decline in account balance before the account is terminated. Expressed as a percentage of starting balance (e.g. 10% max drawdown on a $100,000 account = $10,000 maximum loss). The structure of how drawdown is calculated — static or trailing — is one of the most important factors in funded account sustainability. See also: Static Drawdown, Trailing Drawdown, Daily Loss Limit.

Dynamic Drawdown

See: Trailing Drawdown.

EA (Expert Advisor)

An automated trading script running on MetaTrader 4/5 or similar platforms. EAs execute trades based on programmed logic without manual intervention. Many prop firms permit EAs but ban specific EA types — particularly those using latency arbitrage, tick scalping, or high-frequency strategies. Always verify your specific EA strategy against the firm's prohibited trading methods before funding.

Equity Protection

A hidden funded-stage rule that monitors unrealised (floating) losses on open positions. If open trades fall below a defined equity threshold — often 1–3% of balance — all positions are auto-closed and the account may be terminated. Functions as a third drawdown layer independent of the daily loss limit and max drawdown. Also marketed as "Guardian Shield", "Open Position Loss Limit", or "Floating Loss Protection". See also: Guardian Shield, Open Loss Rule.

Evaluation Phase

The challenge period a trader must complete before being funded. Typically involves meeting a profit target (8–10%) within specified risk rules over a minimum number of trading days. The evaluation phase rules are separate from funded-stage rules and are generally more forgiving. Passing the evaluation does not guarantee the funded-stage rules will be similarly structured.

Fee Refund

A feature offered by some firms where the evaluation challenge fee is returned to the trader with their first successful payout from the funded account. Reduces overall financial risk for the trader. Not universal — confirm whether a fee refund applies before registering.

Floating Loss

Unrealised loss on currently open positions. Not yet reflected in the account's realised balance. Firms with equity protection rules monitor floating loss separately from realised drawdown, creating an additional risk layer for traders holding positions through volatile periods. See also: Equity Protection.

Funded Account

The trading account provided to a trader after passing the evaluation. May be a live account (actual market execution with real capital) or a simulated account (paper trading environment that mirrors market conditions). Most prop firms operate simulated funded accounts with payouts drawn from challenge fee revenue rather than actual trading profits.

Funded Stage

The period of trading on a funded account, after passing the evaluation. The rules during this stage — drawdown structure, payout conditions, hidden restrictions, consistency requirements — are what determine whether a trader can sustain the account and receive profits long-term. The funded stage is almost always more complex and more restrictive than the evaluation phase.

Guardian Shield

A branded name used by some prop firms for their equity protection or open position loss rule. A third drawdown trigger based on floating (unrealised) losses. If open trade losses exceed the Guardian Shield threshold at any point, all positions are auto-closed and the account is terminated. The term was popularised by FundedNext but is now used generically to refer to any similar open-loss rule. See also: Equity Protection.

Hidden Rule

Any funded-stage restriction not prominently disclosed in the firm's main marketing materials, typically buried in terms and conditions or client portal documentation. The most common hidden rules include open loss layers, minimum profitable day requirements, best-day caps, and consistency score thresholds. Prop Firm Secret's audit process specifically targets hidden rules as a primary scoring factor.

HFT (High-Frequency Trading)

An algorithmic trading approach using extremely fast execution speeds and very high trade volumes. Banned by virtually all prop firms through "no latency arbitrage" or "no HFT" clauses. Even non-HFT traders using scalping EAs should verify that their execution speed is not flagged as HFT by the firm's monitoring systems.

Latency Arbitrage

A trading strategy that exploits price feed delays between different liquidity sources or data providers to guarantee-entry ahead of market price movements. Universally banned by prop firms. Even traders not intentionally using latency arb should ensure their EA does not trigger the firm's detection systems through rapid entry patterns.

Liquidity Provider

The institutional entity providing market depth and price feeds for trade execution. A firm that discloses its liquidity provider demonstrates a real trading infrastructure behind the prop operation. Absence of any named liquidity provider or broker is a significant red flag suggesting a purely simulated or B-book operation.

Martingale

A risk management strategy that doubles position size after each consecutive loss, on the premise that an eventual winner will recover all prior losses. Banned by most prop firms because it produces exponentially increasing risk with each losing trade, rapidly endangering drawdown limits.

Max Drawdown

The absolute maximum loss permitted from the starting account balance. Expressed as a percentage (typically 8–12%). Breaching max drawdown terminates the funded account. The calculation method varies: some firms use starting balance only (static), others trail the floor upward with peak equity (trailing). See also: Static Drawdown, Trailing Drawdown.

Minimum Trading Days

A funded-stage or evaluation requirement specifying the minimum number of calendar days on which at least one trade must be opened and closed. Some firms go further, requiring a minimum number of profitable trading days or days where net profit exceeds a defined threshold. Traders who achieve their target quickly still cannot withdraw until the minimum day requirement is met.

News Trading

A trading approach that involves entering positions around scheduled high-impact economic data releases — NFP, CPI, central bank interest rate decisions, and similar events. Many prop firms prohibit holding open positions within a defined window (often 2–5 minutes) before and after scheduled news releases. Violations can trigger account warnings or termination even when the trade is profitable.

No-Stop-Loss Rule

A requirement that all trades must have a stop-loss order placed at entry. Less common but present in some funded programs. Violation may invalidate trades or result in account warnings.

One-Sided Bet

A restriction preventing traders from opening multiple positions in only one market direction without any opposing hedge. Introduced by B-book firms as a mechanism to limit DCA strategies — particularly directional averaging where a trader continuously adds buy (or sell) positions as the market moves against them. Firms that explicitly permit one-sided bets allow pure directional DCA without any hedging requirement. See also: DCA, Averaging Down.

Open Loss Rule

See: Equity Protection, Guardian Shield.

Overnight Hold

Keeping trades open past the end of the trading day, exposing the position to overnight price movements, swap costs, and weekend gaps. Some prop firms prohibit overnight holds entirely, requiring all positions to be closed before the daily session ends. This significantly restricts swing trading and position trading strategies.

Profit Split

The percentage of net trading profits paid to the funded trader. Typically 70–90%, with some firms advertising 95% or higher. The advertised profit split is not the same as effective payout efficiency — mandatory cycles, consistency requirements, and balance resets can substantially reduce the actual return a trader receives over time.

Profit Target

A required percentage gain that must be achieved before a payout or progression is unlocked. Profit targets exist in both the evaluation phase (typically 8–10%) and, less visibly, in some funded-stage scaling cycle structures. A funded-stage profit target (e.g. reach 10% before withdrawing) is a separate and often undisclosed restriction from evaluation targets.

Proprietary Trading Firm (Prop Firm)

A firm that funds external traders with capital, typically after a paid evaluation process. Traders keep a share of profits. The firm retains the remainder and manages overall portfolio risk across its trader base. The majority of modern retail prop firms operate simulated funded accounts rather than routing trades to live markets with real institutional capital.

Rule Pressure

A composite measure used by Prop Firm Secret to quantify how many restrictive conditions exist on a funded account. High rule pressure means more ways to breach an account through non-trading rule violations — hidden drawdown layers, consistency requirements, minimum day requirements, best-day caps — independently of actual market losses. Rule pressure is one of four weighted factors in the Prop Firm Secret AI Score.

Scaling Plan

A structured programme allowing traders to progress to progressively larger funded accounts based on profitability milestones. Common structure: maintain a certain return % over a defined period, then the account size increases (e.g. from $100,000 to $200,000). Scaling plans often involve balance resets, performance review periods, or minimum number of successful payouts before the upgrade is confirmed.

Soft Breach

A warning threshold set below the actual account breach level. Some firms alert traders when they approach a rule limit — for example, when daily loss reaches 80% of the daily limit — giving time to reduce exposure before an actual breach occurs. Soft breaches are informational only and do not themselves terminate the account.

Static Drawdown

The most trader-friendly drawdown structure. The maximum permitted loss is calculated from the original starting balance and does not change regardless of profits made. A $100,000 account with 10% static drawdown always has a floor of $90,000, whether the account has grown to $130,000 or remains at $100,000. Provides a predictable, non-moving risk threshold and rewards profitable trading by expanding available cushion relative to current balance.

Trader Compatibility

A scoring metric used by Prop Firm Secret that measures how well a firm's specific rule set aligns with a given trading style. A firm with high compatibility for scalpers may be poorly suited to swing traders — and vice versa. Trader compatibility is calculated separately from the AI Score and reflects rule alignment rather than firm quality.

Trailing Drawdown

The most common drawdown structure in the retail prop firm industry and the most difficult to manage long-term. The maximum loss floor moves upward as your peak equity increases. The more you profit, the higher the floor rises — and the narrower your cushion becomes. A trader who grows their account significantly and then faces a normal drawdown period may breach the trailing floor even while remaining net-positive from their starting balance. This structure is particularly punishing for volatile or volatile-adjacent trading styles. Opposite of: Static Drawdown.

Weekend Hold

Keeping positions open over the weekend when markets are closed (Friday close to Sunday open). Exposes trades to weekend gap risk — significant price differences between Friday's close and Sunday's open due to news or events that occurred when markets were closed. Some prop firms prohibit weekend holds entirely. Others permit them but do not limit gap-related loss from counting toward the daily loss limit.

Withdrawal Cycle

The minimum time period or conditions that must be satisfied before a profit withdrawal can be requested and processed. Typical cycles are 14 or 30 calendar days. Some firms offer on-demand or bi-weekly withdrawals; others enforce strict monthly cycles with no early withdrawal option. The cycle length significantly affects the effective annual return of a funded account, particularly for traders who can compound profits quickly.