Prop firm terms explained: a glossary for evaluations and funded accounts
Max loss limit, trailing and end-of-day drawdown, daily loss limit, profit target, consistency, buffer, payouts, activation fees, resets and more, with what to watch out for in each.
Prop firm rules come with their own vocabulary, and every firm uses slightly different words for the same thing. Misreading one term is one of the most common ways traders fail an evaluation they were actually passing. Here's what the words usually mean, and what to watch out for with each one.
Rules differ from firm to firm and change often. Use this as a map, then read your own firm's rules on their help pages before you trade.
The account stages
| Term | What it usually means |
|---|---|
| Evaluation (or challenge) | A test account you pay for. Reach the profit target without breaking a rule and you pass. Some firms give it their own brand name. |
| Funded account | The account you trade after passing. At most firms it starts as a simulated account; your payouts are real money. More in is a funded account real money? |
| Live account | An account trading real money in the market, which some firms move their best traders to. |
| Activation fee | A one-time fee some firms charge when you pass, before your funded account starts. |
| Reset | Paying to restart an evaluation from the beginning after breaking a rule or falling behind. |
The rules that can end your account
| Term | What it usually means | Watch out for |
|---|---|---|
| Max loss limit (max drawdown) | How far your account can fall before it fails. | It is often measured from your highest balance, not your starting balance. |
| Trailing drawdown | A max loss level that moves up as your account makes new highs. | Whether it trails your intraday peak, including open profit, or only your end-of-day balance. See trailing drawdown explained. |
| End-of-day (EOD) drawdown | A trailing drawdown that only moves up based on your closing balance each day. | You can still fail during the day if you hit the current level. |
| Static drawdown | A max loss level that never moves. | Rarer, and usually a smaller amount. |
| Daily loss limit | The most you can lose in one trading day. | Some firms fail the account; others just stop you for the day. |
| Contract limit | The most contracts you can hold at once. | Micros often count as one tenth of a full contract, but not everywhere. |
| News rules | Limits on trading around major economic releases. | See news trading and prop firm rules. |
The rules about how you pass and get paid
| Term | What it usually means | Watch out for |
|---|---|---|
| Profit target | How much you need to make to pass an evaluation. | It is measured on your balance, so fees count against it. |
| Minimum trading days | The fewest days you must trade before you can pass or request a payout. | A day may only count if you made a minimum amount. |
| Consistency rule | No single day can be more than a set share of your total profit. | One huge day can delay a pass or a payout. See the consistency rule explained. |
| Winning days (payout days) | Days with at least a set profit, counted toward payout eligibility. | Small green days may not count. |
| Buffer (threshold) | Extra profit some firms require you to keep above your max loss level before paying out. | Withdrawals cannot take you below it. |
| Payout | Money you withdraw from a funded account. | Some firms move your max loss level after a payout. See how prop firm payouts work. |
| Profit split | The share of profits you keep, often 80% to 100%. | Some firms change the split after your first payouts. |
| Scaling plan | More contracts allowed as your profit grows. | See scaling plans and contract limits. |
A few more you'll hear
- Copy trading: one account's trades are copied to others. Some firms allow it across your own accounts; read multiple accounts and copy trading.
- Inactivity rule: an account can be closed if you don't trade for a set number of days.
- Hard breach vs soft breach: a hard breach fails the account; a soft breach just closes your positions or stops you for the day.
- Blown account: trader slang for an account that failed a rule. Here's what to do after blowing an account.
Firm by firm
We keep notes on how each firm applies these terms: Topstep, Apex, MyFundedFutures, Lucid, Tradeify and TradeDay. Always check the firm's own pages too, since rules change.
Let your journal track the rules
Market Matrix comes with presets for popular firms and tracks your max loss level (trailing, end-of-day or static), daily loss limit, profit target, consistency and payout winning days from your real trades. You see how far you are from each limit before you place the next trade, not after.
This article is for education only and isn't financial advice. Prop firm rules vary and change often; always read your firm's current rules. Trading futures involves substantial risk of loss.