Prop firm terms

Consistency rule

A consistency rule limits how much of a trader's total profit may come from a single day or single trade, intended to filter out results driven by one lucky position.

Caps vary by firm. FTMO's Best Day Rule requires that "your Best Day does not represent more than 50% of your Positive Days' Profit", and Topstep's Trading Combine requires that "Your single best day of profit must stay at or below 55% of your Profit Target". Going over usually delays the pass or the payout rather than failing the account: at Topstep, "If it exceeds that, your Profit Target increases."

The intent is reasonable — it distinguishes a repeatable process from one large gamble — but it penalises legitimate strategies with uneven return distributions. Breakout systems in particular make much of their money on a small number of days by design.

It is one of the rules most likely to be overlooked when configuring a bot, because it does not fail the account, it silently withholds the payout. Read it before starting rather than at withdrawal time, and check whether it applies to the evaluation, the funded stage, or both.

Daily drawdown limit

Also called: Daily loss limit, Maximum daily loss, Daily drawdown, What is daily drawdown in prop firm.

A daily drawdown limit, also called a daily loss limit, is the most a prop firm account may lose in one trading day, usually 3% to 5% of the starting balance. Open losses count toward it, and at most firms reaching it breaks the rules and ends the account.

Read the full entry: Daily drawdown limit →

Evaluation challenge

Also called: Prop firm challenge.

An evaluation challenge is the paid assessment phase in which a trader must hit a profit target within rule limits to qualify for a funded account.

Typical parameters are an 8% to 10% profit target, a 5% daily loss limit and a 10% maximum drawdown, sometimes across two phases with a lower target in the second. Time limits were once universal and many firms have now removed them.

The structure rewards consistency far more than aggression, and this is where most attempts fail. Reaching 10% is not difficult with size; reaching it without ever losing 5% in a day is a different problem, and it is the one the rules are actually testing.

For a bot the challenge phase is where risk settings should be at their most conservative, not their most aggressive. Halving the default risk roughly doubles the number of consecutive losses the account can absorb, and surviving the drawdown rule is the binding constraint — see passing a prop firm challenge.

Funded account

Also called: Funded trading account, Prop firm funded account, Funded trader account, Funding account, What is a funded account.

A funded account is the trading account a prop firm gives you after you pass its paid evaluation. You trade it under the firm's loss limits and keep most of the profit, usually 80% to 90%; break a rule and the account is closed.

Read the full entry: Funded account →

Payout split

The payout split is the share of funded-account profits the trader keeps, commonly 80% to 90%, with the remainder retained by the prop firm.

Splits have compressed as the industry has become competitive, and headline percentages of 90% or more are now common. The percentage alone is a poor basis for choosing a firm, because payout frequency, minimum thresholds and processing reliability vary far more than the split does.

The questions that matter more are how often payouts can be requested, what minimum applies, how long processing takes in practice, and whether the firm has a history of paying. A 90% split from a firm that disputes withdrawals is worth less than 75% from one that does not.

Consistency rules can also gate payouts independently of the split. A firm may require that no single day accounts for more than a set share of total profit, which can delay or void a payout earned largely in one strong session — a specific risk for bots that occasionally have an outsized day.

Profit target

Also called: Prop firm profit target, Profit targets, Prop firm challenge target, Profit target to drawdown ratio.

A profit target is the gain you must make in a prop firm evaluation to pass it, usually 8% to 10% of the starting balance in a first phase and around 5% in a second. You must reach it without breaking the daily or maximum loss limit on the way.

Read the full entry: Profit target →

Prop firm

Also called: Proprietary trading firm, Prop trading firm, Funded trading firm, Prop firm account, What is a prop firm, What are prop firms, What is prop firm trading.

A prop firm, short for proprietary trading firm, gives traders an account to trade in return for a share of the profits. In the retail model you pay for an evaluation, trade under the firm's rules and, if you pass, receive a funded account that pays you most of what you make, usually 80% to 90%.

Read the full entry: Prop firm →

Trailing drawdown

Also called: Trailing max drawdown, Trailing maximum loss, Trailing drawdown meaning, What is trailing drawdown.

A trailing drawdown is a maximum loss limit that follows your account's highest value upward and never moves back down. Every new high raises the level at which the account fails, until, at several firms, the limit stops rising once it reaches the starting balance.

Read the full entry: Trailing drawdown →