Prop trading glossary: the terms, briefly explained

Prop firm

Originally a company that trades on its own account and at its own risk. Austria's FMA describes new models appearing as "trading challenges" on online platforms, often without any actual proprietary trading. According to the FMA, most of these platforms are not supervised by any authority^[1].

Challenge or evaluation

A paid assessment: you trade under fixed rules and have to reach a profit target without breaching a loss limit. Belgium's FSMA calls it a "shadow investment game" that costs money, and states that prop trading companies hold no authorisation to provide investment services^[2]. The FMA compares paid challenges to the relationship between a gambler and a casino^[1].

Phase, 1-Step and 2-Step

A phase is one stage of the assessment, with its own targets. In the FTMO Challenge 2-Step, phase 1 is called "FTMO Challenge" (profit target 10%^[17]) and phase 2 "Verification" (profit target 5%^[18]). It is followed by the "FTMO Account", which has no profit target. A 1-Step has a single phase^[3].

Simulated account

An account with fictitious capital: profits and losses exist only in the simulation. At FTMO the account you get after passing is a simulated account too^[19]; FTMO reserves the right to use the data for its own live accounts^[4]. At Topstep the "Express Funded Account" is simulated, and a live account is a possible later step^[20].

“Funded”

The marketing word for the account after a passed challenge. We always put it in quotation marks, because at FTMO and Topstep, for example, that account is a simulated account^[19][20]. Payouts follow the firm's rules, not automatically.

Instant funding

An account without an assessment phase. The FTMO Instant Account has no profit target, but it has loss limits and a consistency rule from the first trade^[3]. Its list price for a 10,000 account is EUR 339^[21], against EUR 89^[22] for the FTMO Challenge 2-Step of the same size.

Profit target

The minimum profit above the initial capital, usually a percentage of it. At FTMO the target is met once the balance exceeds the initial capital by the target with all positions closed. FTMO works it through for a 100,000 account: target 10,000, balance needed 110,000^[3].

Balance and equity

The balance holds closed trades only. Equity includes open positions; FTMO defines it as balance plus open profit or loss, plus or minus swaps, minus commissions^[3]. At FTMO and Topstep open losses count against the loss limits, so a position can breach a limit before you close it^[3][11].

Daily loss

How far your account may fall in one day. In the FTMO Challenge 2-Step it is 5%^[23] of the initial capital, measured from the balance at 00:00 CE(S)T. If equity drops below that, the rule is violated^[3].

FTMO's worked example for 100,000: on day 1 the limit is 95,000. If the balance at midnight is 102,000, the limit on day 2 is 97,000^[3].

It is not a violation everywhere. At Topstep the daily limit in the Trading Combine is optional (USD 1,000 on the 50K account) and only forces a break until the next session^[12].

Maximum loss

The floor for the whole account. At FTMO the rule is violated as soon as equity drops below it^[3]; at Topstep the account is liquidated and cannot pass without a reset^[11]. How the floor moves depends on the drawdown type in the next section.

Minimum trading days

The number of days on which you have to trade at least. FTMO requires 4 trading days^[24] in both phases of the Challenge 2-Step. A trading day is a day on which you open at least one position^[3].

Time limit

The deadline by which a phase must be passed. The FTMO Challenge 2-Step has no time limit^[25].

Consistency rule and best day

It caps the share of your profit that your best day may represent. In the FTMO Challenge 1-Step that is at most 50% of total profit^[26]. Going over is not a rule breach, but you have to keep trading^[3].

FTMO's worked example: days of +6,000, −2,000, +4,000 and +2,000 add up to 10,000 total profit. The best day is 60% of that, so at least 12,000 would be needed^[3].

Topstep uses at most 55% of total profit^[27] in the Trading Combine. With a best day of USD 1,800, the target of the 50K account rises to USD 3,273, which is the best day divided by 0.55^[13].

At prop firms, drawdown means the account's loss limit and how it moves. The drawdown calculator shows the path for your own numbers, and the guide drawdown types explained goes into detail.

Static drawdown

The limit is fixed. In the FTMO Challenge 2-Step with 100,000 it sits at 90,000, however far your account has risen before^[3].

Trailing drawdown

The limit follows your high upwards. FTMO's worked example for an Instant Account of 50,000: the limit starts at 45,000. After a trade that closes at a balance of 50,600 it rises to 45,600 and stays there, even if the balance then falls to 50,300. A reward withdrawal does not reset it^[3].

EOD drawdown

EOD means end of day: the limit only moves up at the daily close. Topstep's worked example for the 50K account: start at 50,000, limit at 48,000. After +500 on day 1 it sits at 48,500; after −500 on day 2 it stays at 48,500. Once it reaches the starting balance, it stops there^[11].

Careful: even though the limit only moves at the close, Topstep monitors it in real time, open losses included^[11].

Profit split

Your share of the simulated profit that the firm pays out. For accounts from the FTMO Challenge 2-Step it is 80%, or 90% with the Scaling Plan or Premium Programme^[32]. The payout calculator shows what is left after that.

Payout

The firm's payment under its own rules; FTMO calls it a "Reward"^[3]. At FTMO you can make the first request on the 14th or any later day after the first trade on the account^[33], and the minimum for a bank wire is USD 20^[34].

Scaling

Growing the account under fixed criteria. FTMO's Scaling Plan: +25% account size every 4 months with at least 10% net profit, up to USD 2M across all accounts^[35].

Reset

A restart of the evaluation account for a fee, for example after a rule breach. At Topstep a reset of a 50K account on the Standard Path costs USD 49^[36], the same as the subscription (USD 49 a month^[37])^[14]. The cost of repeat attempts calculator adds up several attempts.

Activation fee

A fee that is due only after you pass. On the Standard Path Topstep charges USD 149^[38], once for each "Express Funded Account"^[14].

Refund

Whether and when you get the fee back. At FTMO: the 2-Step fee is refunded with the first reward; 1-Step and Instant Account fees are not refundable^[39]. So the refund comes with a payout there, not when you fail.

KYC

Know Your Customer, the identity check with an ID document. The timing matters: FTMO checks for 1-Step and 2-Step after all evaluation objectives are met, for the Instant Account at the first reward request^[40], Topstep after the first purchase, required before the second purchase^[41]. So check before you buy whether your country of residence is accepted.

News rule

Rules for trading around economic releases. On the "FTMO Account" and the Instant Account, FTMO blocks order execution from 2 minutes before to 2 minutes after selected news on the affected instruments; this does not apply to Swing accounts or in the Challenge and Verification^[5]. Topstep prohibits purposefully trading the full maximum position size into a major news event^[16].

Holding overnight and over the weekend

On the "FTMO Account" and the Instant Account, FTMO forbids holding positions through market breaks longer than 2 hours, such as the weekend. Swing accounts and the Challenge and Verification are exempt^[6].

EA (Expert Advisor)

A trading robot for MetaTrader. FTMO allows EAs and algorithmic trading; its servers accept at most 200 orders at a time and 2,000 positions a day. If you use a third-party EA, other traders may run the same strategy, and you can hit the maximum allocation^[7].

Copy trading

Copying trades, for example from signal groups or between your own accounts. At FTMO identical or copied trades across several accounts count towards the maximum allocation of USD 400,000 per trader or strategy; above it, FTMO may suspend the accounts^[8]. Topstep allows a trade copier across several of your own accounts^[15].

Leverage

The ratio between position size and the capital behind it. FTMO offers up to 1:100 on the Standard account and up to 1:30 on the Swing account^[42]; the leverage applies to the simulated capital only^[9].

Lot

The trading unit for forex and CFDs. How much one lot is depends on the instrument (contract size). On FTMO's symbols list it is 100,000 for EUR/USD, 100 for gold (XAU/USD) and 1 for the US500.cash index^[10]. The position size calculator turns risk and stop into lots.

Contract

The trading unit for futures. Topstep caps the contracts open at one time at 5 minis or 50 micros on the 50K account^[43]; micros and minis count at a 10:1 ratio^[15].