Prop Trading Education
Everything you need to know about prop trading — from evaluation challenges to payout structures. Whether you’re a beginner or experienced trader, this guide covers it all.
24 terms across 5 categories
Evaluation & Challenges
1-Step Challenge
A prop firm evaluation with a single phase. You hit one profit target (usually 8–10%) and get funded. Faster but often has stricter rules than 2-step programs.
2-Step Challenge
A prop firm evaluation with two phases. Phase 1 has a higher profit target (8–10%), Phase 2 has a lower target (4–5%). Takes longer but typically has more lenient rules.
Instant Funding
A prop firm program where you receive a funded account immediately after purchase — no evaluation challenge required. Higher upfront cost but zero waiting time.
Free Trial / Free Challenge
Some prop firms offer free demo challenges to let traders test their skills before committing financially. Usually with smaller account sizes.
Evaluation Fee
The one-time cost to participate in a prop firm challenge. Ranges from $17 to $500+ depending on account size. Many firms refund the fee after your first payout.
Profit Target
The percentage gain you must achieve to pass a challenge phase. Typically 8–10% for Phase 1 and 4–5% for Phase 2 of a 2-step evaluation.
Risk Management
Max Drawdown
The maximum amount your account can decline from its peak (or starting balance) before you fail. Usually 4–10% of the account. Exceeding this means automatic disqualification.
Trailing Drawdown
A drawdown limit that moves up as your account balance increases. If your account grows by $2,000, your max loss level also rises by $2,000. Locks in profits but can be tricky for volatile strategies.
Static / Balance-Based Drawdown
A drawdown limit calculated from your initial starting balance, not your peak. Considered more trader-friendly because profitable trades don't raise your loss threshold.
Daily Loss Limit
The maximum you can lose in a single trading day. Usually 4–5% of the starting balance. Resets at the end of each trading day (specific time varies by firm).
EOD Drawdown (End-of-Day)
A drawdown calculation that only checks your account balance at the end of the trading day, not intraday. More forgiving than real-time drawdown tracking.
Consistency Rule
A rule requiring that no single trading day accounts for more than a certain percentage (e.g., 30–40%) of your total profits. Designed to prevent lucky one-day gains from passing the challenge.
Payouts & Profit
Profit Split
The percentage of trading profits you keep. Industry range is 70–100%. For example, an 80% profit split means you keep $800 of every $1,000 in profits.
Payout Frequency
How often you can withdraw profits — bi-weekly (every 2 weeks), monthly, or on-demand. Some firms offer same-day or next-day express payouts.
Scaling Plan
A program where your funded account size increases as you prove consistent profitability. For example, starting at $100K and scaling to $200K after hitting profit milestones.
Trading Rules
News Trading
Trading during major economic news events (NFP, FOMC, CPI, etc.). Some firms prohibit it; others allow it freely. Check each firm's rules before trading news.
Weekend Holding
Keeping positions open over the weekend (Friday close to Monday open). Many firms prohibit this due to gap risk. Some charge swap fees.
Minimum Trading Days
The minimum number of days you must trade during an evaluation phase. Typically 4–10 days. Designed to prove consistency rather than relying on a single lucky trade.
No Time Limit
An evaluation with no deadline to hit the profit target. You can take as long as needed. Most modern prop firms have moved to this model.
Platforms & Tools
MetaTrader 4 (MT4)
The most widely used forex trading platform. Known for its simplicity, Expert Advisors (EAs), and extensive indicator library. Gradually being replaced by MT5.
MetaTrader 5 (MT5)
The successor to MT4 with multi-asset support (forex, stocks, futures), improved backtesting, and more order types. Increasingly the standard for prop firms.
cTrader
A professional-grade trading platform known for its clean interface, Level 2 pricing, and cAlgo for automated strategies. Popular with advanced traders.
DXtrade
A cloud-based trading platform used by several prop firms (Apex, The5ers). No download required — runs entirely in the browser.
TradingView
A web-based charting platform with extensive social features, technical analysis tools, and integration with multiple brokers. Increasingly supported by prop firms.
Ready to get funded?
Now that you know the terminology, find the best prop firm for your trading style.