Prop Firm Glossary: Every Rule and Term Explained

Prop firm rules fall into five families: profit targets, loss limits (drawdown), consistency rules, payout terms, and conduct restrictions on what, when and how you trade. Each proprietary trading firm (a company that funds traders, often on a simulated account, for a profit share) writes its own rulebook, so the same word can mean different mechanics at two firms. The 64 terms below are grouped by theme.

Key takeaway

Every prop firm rule is a profit target, a loss limit, a consistency test, a payout term or a conduct restriction, and the same name can hide different mechanics at different firms. The most consequential difference is how drawdown trails: on the same illustrative five-day path, an intraday trailing account fails, an end-of-day trailing account survives with $100 to spare, and a static account survives with $1,400.

Firm numbers are dated examples

Firm-specific figures come from Topstep's help pages, checked on 27 September 2026. Confirm your own firm's current rulebook before relying on any number.

What are the stages of a prop firm account?

A prop firm account usually moves through three stages: a paid evaluation, a funded account that earns payouts, and at some firms a live account trading real capital. Topstep's help center describes its funded stage as the "simulated funded-level account you earn after passing your Trading Combine", so funded there means simulated. A failed evaluation loops back through a reset or a new purchase; a passed one goes through activation to the funded stage.

Most glossary terms belong to one stage. Knowing which stage a term applies to answers half the questions about it, such as why an express funded balance starts at zero.

Prop firm

A proprietary trading firm that funds traders on its capital or a simulated account for a share of profits. Retail prop firms usually admit traders through a paid evaluation rather than hiring them.

Account size

The headline balance of an evaluation or funded account, such as $50,000, against which targets and loss limits are set. The figure is not withdrawable cash; with a $2,000 maximum loss, the account fails after losing $2,000.

Evaluation

A paid test in which the trader must reach a profit target without breaking a loss or conduct rule to earn a funded account, in one-step, two-step or multi-step formats.

Combine

A common name for a futures evaluation, from Topstep's Trading Combine, which tests a profit target, a maximum loss limit and a consistency target in one step.

Challenge

The name many CFD and forex prop firms give an evaluation's first phase, with a percentage target such as an illustrative 8%.

Verification phase

The second phase of a two-step evaluation, with the same loss rules and a lower profit target (illustratively 5% after an 8% challenge).

Instant funding

A funded account sold with no evaluation, so the firm's loss and payout rules apply from the first trade.

Funded account

The stage in which the trader earns payouts on profits. A funded account can be simulated or live, and the word alone does not say which.

Sim funded account

A funded-stage account trading in a simulator while the firm pays real money on its results; orders never reach an exchange.

Express Funded Account (XFA)

Topstep's sim funded account, earned by passing its Trading Combine; its balance starts at $0 and grows from trading profits.

Live funded account

A funded account trading real capital at a broker. Topstep's version makes 20% of the balance tradable at once (minimum $10,000) and releases the 80% reserve in four 25% steps, one per profit threshold reached ($3,000 on a $50K account).

Activation fee

A one-time charge to open a funded account after a pass. Topstep charges $149 per Express Funded Account on its Standard path and offers a No Activation Fee Trading Combine instead.

Reset

A paid restart that returns an evaluation to its starting balance, loss limit and day count, instead of buying a new account.

Trailing, end-of-day and static drawdown: what is the difference?

Static drawdown never moves, end-of-day trailing drawdown rises with each new high closing balance, and intraday trailing drawdown rises with the highest equity reached, open profit included. Topstep's maximum loss limit is the end-of-day kind: "The MLL is a trailing limit. It rises as your end-of-day balance grows, but never moves down." The same page adds that "Both realized and unrealized P&L count toward it", so an end-of-day floor is still enforced mid-session.

The table runs one illustrative five-day equity path through all three rules. Inputs: $50,000 starting balance, $2,000 maximum loss, trailing floors lock at $50,000, each day's high comes before its low, and touching the floor is a breach. Static floor = $50,000 - $2,000. End-of-day floor = the lower of $50,000 and (highest prior close - $2,000). Intraday floor = the lower of $50,000 and (highest equity so far - $2,000). Brackets show the cushion: the day's low minus the floor.

Day	High	Low	Close	Static floor	End-of-day floor	Intraday trailing floor
1	$51,000	$50,300	$50,600	$48,000 (+$2,300)	$48,000 (+$2,300)	$49,000 (+$1,300)
2	$51,800	$50,900	$51,200	$48,000 (+$2,900)	$48,600 (+$2,300)	$49,800 (+$1,100)
3	$52,400	$51,000	$51,300	$48,000 (+$3,000)	$49,200 (+$1,800)	$50,000, locked (+$1,000)
4	$51,600	$49,700	$50,000	$48,000 (+$1,700)	$49,300 (+$400)	$50,000 (-$300): breached, account closed
5	$50,900	$49,400	$49,600	$48,000 (+$1,400)	$49,300 (+$100)	Closed on Day 4

The path ends at $49,600, only $400 below the start. Day 3 decided the outcome: equity touched $52,400 but closed at $51,300. The intraday floor followed the peak (to $50,400, held at the $50,000 lock), while the end-of-day floor followed only the close (to $49,300), so the intraday account entered Day 4 with $700 less room.

Same trades, three outcomes: the intraday-trailing account fails on Day 4, the end-of-day account survives with $100 to spare and the static account with $1,400. The name of the drawdown type is the most expensive term on this page.

Drawdown

The decline in account equity from a peak; in prop firm rules, usually the maximum decline allowed before the account fails.

Maximum loss limit (MLL)

The total loss an account may take, measured from the starting balance or a trailing peak, before it is closed. Topstep sets $2,000, $3,000 and $4,500 for its $50K, $100K and $150K accounts (4%, 3% and 3% of account size).

Drawdown floor

The balance at which an account fails: the reference balance minus the maximum loss, or $48,000 on a fresh $50,000 account with a $2,000 limit.

Static drawdown

A loss limit whose floor never moves: $48,000 stays $48,000 even after the balance reaches $55,000.

Trailing drawdown

A loss limit whose floor rises with new highs and never moves down; the end-of-day and intraday versions differ in which highs count.

End-of-day drawdown

A trailing drawdown whose floor moves only when a closing balance sets a new high, so a trade up $800 at noon that closes the day flat leaves it unchanged.

Intraday trailing drawdown

A trailing drawdown whose floor follows the highest equity reached, open profit included, so a reversed open gain still raises the floor if it set a new high.

Lock at breakeven

The point where a trailing floor stops rising for good, at the starting balance at Topstep. A $50,000 account with a $2,000 limit locks once its high-water mark reaches $52,000 (a close under end-of-day rules, any equity print under intraday rules).

Daily loss limit (DLL)

A cap on one day's loss, such as Topstep's $1,000 on a $50K account (2%). Some firms fail the account on a breach; Topstep's optional DLL flattens positions and blocks trading until the next session.

Hard breach and soft breach

A hard breach fails the account; a soft breach closes positions or ends the day but leaves the account alive.

Unrealized P&L

Profit or loss on open positions, realized when they close. Real-time loss limits count it, so an open loss can breach the floor.

Risk of ruin

In prop trading, the probability of hitting the drawdown floor before the profit target. For a trader with a positive edge it rises as position size grows relative to the maximum loss; with zero edge, no costs and a static floor it equals target ÷ (target + maximum loss) at any size, or 60% for a $3,000 target against a $2,000 limit.

How do profit targets and consistency rules work?

A profit target sets the net profit an account must make to pass, and a consistency rule caps the share of that profit earned on one day. Topstep's funded-stage formula reads "Largest Single-Day Net Profit ÷ Total Net Profit = Consistency %", and "Your Consistency % must be 40% or below to be Payout eligible." Consistency rules screen for repeatable results, and repeatable day-trading skill is rare: Barber, Lee, Liu and Odean (2014), studying Taiwanese day traders from 1992 to 2006, concluded that "Less than 1% of the day trader population is able to predictably and reliably earn positive abnormal returns net of fees." The sample is Taiwanese stocks, not US futures.

Profit target

The net profit an evaluation must reach to pass, such as an illustrative $3,000 on a $50,000 account (6%). A $3,000 target against a $2,000 maximum loss asks for $1.50 of profit per $1 of allowed loss.

Consistency rule

A cap on the share of total profit from the single best day, computed as best day ÷ total profit. A $1,200 best day on $2,000 total is 60%, so a 40% rule needs $3,000 total (1,200 ÷ 0.40) and a 50% rule needs $2,400.

Minimum trading days

Days with at least one trade required before a pass or payout; Topstep's Consistency payout path requires 3.

Winning day

A trading day whose net profit meets a set threshold; Topstep's Standard payout path requires 5 winning days of $150 or more.

How do prop firm payouts and profit splits work?

Funded-account profit reaches the trader through three filters: the buffer that must stay in the account, the per-request cap, and the profit split. On illustrative numbers, $3,000 of profit minus a $1,000 buffer leaves $2,000 eligible; a $1,500 cap limits the request to $1,500; a 90/10 split pays the trader $1,350 and the firm $150; and $1,500 of profit stays in the account.

Profit, eligible profit and a payout are three different numbers. The buffer and the per-request cap decide how much of the profit is withdrawable now, before the split even applies.

Payout

A withdrawal of the trader's share of funded-account profit, paid in real money even from a simulated account.

Profit split

The percentage of withdrawn profit the trader keeps; at Topstep's 90/10, a $1,000 withdrawal pays the trader $900 and the firm $100.

Payout cap

The most a trader can withdraw per request or period. Topstep caps Express Funded Account requests at 50% of the balance, up to $2,000, $3,000 or $5,000 on the Standard path and $3,000, $4,000 or $6,000 on the Consistency path for $50K, $100K and $150K accounts; live funded requests keep the 50% limit with no dollar cap.

Minimum payout

The smallest amount a firm will process in one request, such as Topstep's $125.

Buffer

Profit a firm requires to stay in the account around a payout, keeping the balance clear of the drawdown floor; amounts and timing vary widely by firm.

Payout schedule

How often payouts may be requested, by calendar cycle or winning-day count; Topstep unlocks daily payouts after 30 days of $150 or more net profit in a live funded account.

Payout denial

A rejected payout request, due to an unmet eligibility rule (consistency, winning days, minimum balance) or a conduct review flag.

KYC (know your customer)

Identity verification, typically government ID and proof of address, required before funding or a payout.

What trading rules and restrictions do prop firms enforce?

Prop firms restrict position size, trading hours, news exposure, holding periods and conduct, and every restriction applies to every trade at once. One trade in a Topstep $50K Trading Combine sits inside five layers: the contract limit, a $48,000 starting floor, an optional $1,000 daily loss limit, the news rule and the flat-by-close deadline. Conduct rules reach across accounts too: Topstep's hedging guidance defines cross-account hedging as "simultaneously going long and short the same or correlated instrument across multiple accounts" and prohibits it.

Every trade has to clear all six rings at once, and the outer two are the ones traders forget because they are about time and other accounts rather than the position itself.

Contract limit

The most contracts an account may hold at once. Topstep's Trading Combine allows 5, 10 and 15 contracts, or 50, 100 and 150 micros, on its $50K, $100K and $150K accounts, counting 10 micros as 1 mini.

Scaling plan

A schedule that raises the contract limit as profit grows, such as an illustrative 2 contracts until the balance is $1,500 above start, then 5.

News blackout

A restricted-trading window around scheduled economic releases, such as an illustrative 2 minutes either side of a jobs report. Topstep instead bans purposefully trading full maximum position size into a scheduled major news event.

Flat by close

A rule that every position must close by a set time each day; Topstep's trading day ends at 3:10 PM CT and the next begins at 5:00 PM CT.

Overnight holding

Keeping a position open through the daily close into the next session, which day-trading programs such as Topstep's forbid.

Weekend holding

Keeping a position open from the Friday close to the Sunday reopen, exposed to any opening gap; firms that allow overnight holding can still forbid it.

Prohibited conduct

Practices a firm bans regardless of results, such as cross-account hedging, account stacking or exploiting simulator fills; at Topstep, consequences range from a warning to payout denial or permanent account closure.

Hedging (cross-account)

Holding opposite positions across prop accounts in the same or correlated instruments, so whichever account loses, another gains.

Simulator exploitation

Relying on simulated fills a live market would not give; Topstep's prohibited strategies include repeatedly exploiting the simulator's relative lack of slippage for impossible stop-loss fills and, separately, placing orders outside the best bid or offer.

Which futures terms does a funded trader need to know?

A funded futures trader needs contract size, tick value, session times, settlement, rollover and margin, because those terms turn a dollar loss limit into points and contracts. The CFTC glossary defines a day trader as one who "takes positions and then offsets them during the same trading session prior to the close of trading", the pattern a flat-by-close rule enforces. Contract values below are standard CME specifications.

Micro contract

A futures contract one tenth the size of its E-mini: the Micro E-mini S&P 500 (MES) moves $5 per index point against $50 for the E-mini (ES), so 10 MES carry the exposure of 1 ES.

Tick

The minimum price increment of a futures contract; ES, MES, NQ and MNQ all move in 0.25-point ticks.

Tick value

The dollar value of one tick on one contract: $12.50 on ES, $1.25 on MES, $5.00 on NQ and $0.50 on MNQ. A $2,000 maximum loss equals 160 ES ticks (40 points) on one contract, or 8 points on five.

Trading day

The period counted as one day for daily limits and day counts; CME trade dates start the evening before, so a Sunday 6:00 PM CT order belongs to Monday's session.

Settlement price

The official daily price an exchange sets for each contract to mark positions and calculate margin, which can differ from the last trade.

Front month

The nearest-expiring contract month, which carries most trading volume until traders roll to the next month.

Rollover

Closing the expiring contract and opening the next contract month; equity index futures expire in March, June, September and December, and volume usually moves to the next month about a week before expiry.

Margin

Money held as a performance bond on an open futures position: initial margin to open it, a lower maintenance level that triggers a margin call, and at many brokers a smaller day-trade margin.

Slippage

The difference between an order's expected price and its fill, largest in fast markets such as the seconds after a scheduled release.

Leverage

Position value divided by the capital securing it; one ES contract at an illustrative 6,000 index points controls $300,000 (6,000 × $50). ESMA's 2018 retail CFD measures capped leverage between 30:1 on major currency pairs and 2:1 on cryptocurrencies.

What do copy trading terms mean for multiple prop accounts?

A trade copier replicates each order from one master account into follower accounts, each sized by its own setting and each still bound by its own firm's rules. On illustrative numbers, a master trading 2 MES copied into 5 followers at 2 MES each puts 10 MES (1 ES equivalent) on the followers, so a 20-point adverse move costs $200 per account (2 × $5 × 20) and $1,000 across the five. Copied accounts are correlated, not diversified.

The copy-trading terms fit on one diagram. The one to remember is combined exposure: five small accounts copying one decision carry one full-size contract of risk.

A copier cannot rescue a strategy that breaks consistency or drawdown rules, and adds nothing for a trader with one account or no passed evaluation. Firms word their copying rules differently. Topstep's hedging page states "You can trade the same markets across different accounts" and warns that "copy trading software can create temporary opposite positions", while holding the trader responsible for anything automated or third-party tools create; other firms need their own current policy checked before accounts are connected. Thor, this blog's own product, is a server-side copier; the terms below apply to any copier.

Copy trading

Automatically replicating one account's or trader's positions in other accounts. Copying another person's signals into a prop account raises different rule questions from copying between your own accounts: Topstep's Prohibited Conduct page bans trading in concert with others to pool risk or to trade the same or opposite strategy simultaneously.

Trade copier

Software that sends each order from a master account to follower accounts, adjusting size per account. A local copier runs on the trader's computer; a server-side copier keeps copying when that computer is off.

Master account

The account whose orders a trade copier replicates, and the only account the trader trades directly.

Follower account

An account receiving copied orders from the master, sized by its own setting and bound by its own firm's limits.

Per-account sizing

The setting that sizes each follower's orders relative to the master, as a fixed quantity or a multiplier; a 0.5 multiplier turns a 4-contract master order into 2 contracts.

Copy latency

The delay between the master's order and each follower's, during which price can move, so follower fills can differ.

Account cap

The most accounts one trader may hold at a firm; Topstep allows 5 active Express Funded Accounts and closes them all when the trader is called up to a Live Funded Account.

Account stacking

Repeatedly hitting the loss limit on one account, then switching to another to repeat high-risk attempts; Topstep lists it as prohibited conduct.

Go deeper

Frequently asked questions

How many points can I lose on NQ before a $2,000 drawdown fails the account?

On a fresh account, 100 points on one NQ contract, because each point is worth $20 (four $5.00 ticks), or 1,000 points on one MNQ. Holding 5 NQ cuts the room to 20 points, before commissions and slippage.

Why did my drawdown floor move when I didn't close the trade?

The account most likely uses intraday trailing drawdown, which raises the floor from the highest equity reached, open profit included. A trade that ran $1,000 into profit at a new high and came back to breakeven leaves the floor up to $1,000 higher, less if the floor reached its lock level first.

Is intraday trailing drawdown always stricter than end-of-day drawdown?

It is never looser, for the same loss limit and lock level. The highest equity reached is never below the highest close, so the intraday floor sits at or above the end-of-day floor until both lock.

What is the difference between a daily loss limit and a maximum loss limit?

A daily loss limit caps one session's loss and resets the next day, while a maximum loss limit covers the account's whole life. Hitting the maximum loss ends the account; hitting a daily limit ends the day at some firms and the account at others.

Does the consistency rule use the profit target or total profit?

At Topstep, total profit: both published formulas divide the best day by total profit, even though the Combine cap is worded as 55% "of your Profit Target". A best day above that cap raises the target, so profit made on other days is what brings the ratio back under the limit.

Do prop firm rules apply per account or across all my accounts?

Targets, loss limits and consistency apply to each account separately, while conduct rules look across every account a trader holds. Opposite positions in two of your own accounts can breach a hedging ban even though each account stays within its own limits.

Is an activation fee the same as a reset fee?

No. A reset fee restarts an evaluation, while an activation fee opens the funded account after a pass, so one trader can pay both on the way to a single funded account.

What percentage of traders pass prop firm evaluations?

No audited, industry-wide pass rate exists, because no regulator collects evaluation results from prop firms. Percentages that circulate online rarely name a firm, sample, period or method, so treat any rate without those as marketing or guesswork.

Can I use a trade copier on prop firm accounts?

At firms whose rules allow it, yes for your own accounts, provided the copier never creates opposite positions. Topstep's payout policy notes that a copy-trading connection is switched off automatically while a payout processes and must be re-enabled by hand. Where a firm's help pages say nothing about copiers, ask its support in writing before connecting accounts.

Is hedging allowed at prop firms?

Not across accounts at Topstep or at firms with similar conduct rules. Inside a single US futures account, a buy and a sell in the same contract normally net into one position, so there is nothing to hedge within it.