Futures Prop Firm Glossary: Terms and Definitions

This comprehensive glossary provides definitions for common terminology used across futures proprietary trading firms in alphabetical order. These universal concepts and terms apply to most futures prop firms.

A

Automated Trading

Using Expert Advisors (EAs) or algorithmic trading systems without explicit approval. Most firms require manual trading or specifically approved automated strategies.

B

Bracket Orders

A set of related orders that manage both profit targets and stop losses automatically when a position is opened.

C

Capital Allocation

The amount of trading capital provided to a funded trader, based on the evaluation package purchased and performance demonstrated.

Challenge

A common term for the evaluation phase where traders must meet specific profit targets while following risk management rules.

Consistency Rule

A requirement that no single trading day’s profit exceeds a certain percentage (typically 30-50%) of total profits. Prevents gambling behavior and ensures methodical trading.

Use our prop firm consistency rule calculator to determine if you’re trading strategy can stay within limits.

Contract Size

The quantity of the underlying asset represented by a single futures contract. For example, one E-mini S&P 500 contract represents $50 times the index value.

Contract Size Consistency

The requirement to maintain relatively consistent position sizes aligned with one’s trading strategy. Rapidly changing contract sizes may be flagged as inconsistent risk management.

Contract Specifications

The standardized terms defining a futures contract, including size, tick value, expiration date, and settlement procedures.

D

Daily Loss Limit

The maximum amount a trader can lose in a single trading day before their account is locked or liquidated for the remainder of the day. Usually smaller than the overall maximum drawdown limit.

Day Trading Margin

Reduced margin requirements for positions closed within the same trading day.

Demo Account

A practice trading account using virtual funds that simulates real market conditions. Used primarily during evaluation phases.

Drawdown

The reduction of a trading account’s balance from its previous peak. Used to measure risk and establish risk management parameters.

E

Evaluation Process

The assessment procedure traders must complete to qualify for funded trading. Demonstrates risk management, profitability, and adherence to trading rules.

End of Day Trailing Drawdown

This is the biggest loss from your highest account balance during that trading day, and it stays with you even if your account goes back up.

Use our EOD Trailing Drawdown Calculator to determine if your profit target can be achievable.

Expiration Date

When the futures contract is settled, either through physical delivery or cash settlement.

F

Fixed/Static Drawdown

A maximum loss limit calculated from the initial account balance, establishing a fixed floor that cannot be breached. The simplest form of drawdown calculation.

Use our prop firm static drawdown calculator to determine if you’re trading strategy can be profitable with this drawdown.

Funded Trader

A trader who has successfully completed a prop firm’s evaluation process and now trades with the firm’s capital, typically sharing profits according to a predetermined split.

Funding Agreement

The legal contract outlining all terms and conditions between the trader and the prop firm, including profit splits, trading rules, and other obligations.

Futures Contract

A standardized agreement to buy or sell an asset at a predetermined price on a specified future date. The basic instrument traded in futures markets.

H

Hedging

Opening simultaneous positions in opposite directions on the same instrument. Some firms permit hedging, while others restrict it.

I

Initial Margin

The upfront deposit required to open a futures position.

Instant Funding

Programs that provide immediate access to funded accounts without traditional evaluation phases, typically with stricter rules and monitoring than standard evaluations.

L

Limit Order

An order to buy or sell at a specified price or better.

Live Funded Account

An account funded with actual capital after traders demonstrate consistent performance in evaluation and/or simulated funded accounts.

M

Maintenance Margin

The minimum balance required to keep a futures position open.

Margin in Futures Trading

The deposit required to open and maintain a futures position in futures markets.

Market Order

An order to buy or sell immediately at the best available price.

Maximum Drawdown Limit

The largest allowable decline in account value before breaching firm rules. Typically ranges between 5-10% of initial account size.

Maximum Position Size

The largest number of contracts a trader is permitted to hold simultaneously, based on account size and risk parameters.

Microscalping

Executing many trades capturing minimal price movements within very short timeframes (often seconds). Often restricted due to difficulties in replication.

Minimum Trading Days

The required number of active trading days needed during the evaluation period. Ensures traders demonstrate consistency rather than making all profits in a single day.

N

Negative P&L Limit

A restriction on how much open loss a trader can carry at any given time, typically calculated as a percentage of account balance or profit.

News Trading Rules

Restrictions on trading during major economic announcements or market events. May prohibit new positions shortly before releases or require reduced position sizes.

O

One-Step Evaluation

An evaluation process requiring traders to pass only a single phase before receiving funding. Generally offers quicker access to funded accounts but may have stricter rules.

Overnight Margin

Higher margin requirements for positions held beyond the market close.

P

Payout Cycle

The regular schedule determining when traders can request withdrawals of their profit share. May be weekly, bi-weekly, or monthly depending on the firm.

Payout Processing Time

The typical timeframe between a withdrawal request and funds being received, usually ranging from 2 to 10 business days.

Payout Requirements

Conditions that must be met before traders can withdraw profits, such as minimum profit threshold, compliance with trading rules, minimum trading days, or safety buffer above drawdown limits.

Permitted Trading Hours

The specific times during which trading is allowed, often excluding certain high-volatility periods like market opens or economic releases.

Profit Retention

The portion of profits kept in the trading account to increase the capital base or serve as a safety buffer against future losses.

Profit Split

The agreed-upon percentage division of trading profits between the trader and the firm. Typically ranges from 50% to 90% for the trader.

Use our profit split calculator to see how much you can potentially earn.

Profit Target

The predetermined profit amount traders must achieve during evaluation to advance to the next stage or receive funding. Typically expressed as a percentage of account size (e.g., 8-10%).

Prohibited Trading Practices

Activities explicitly forbidden by prop firms, which may include hedging, unauthorized automated trading, microscalping, and stop hunting.

Prop Firm

A company that provides trading capital to approved traders who have demonstrated proficiency through an evaluation process. Unlike brokerages that earn from commissions and spreads, prop firms primarily profit from successful traders.

Use our prop firm directory to find a list of the best futures prop firms available.

Proprietary Capital

The firm’s own funds used for trading, as opposed to client deposits or investments. This is the capital funded traders are granted access to after passing evaluations.

Proprietary Trading (Prop Trading)

The practice where firms trade financial instruments using their own capital rather than client funds. In modern prop trading programs, firms provide capital to qualified traders and share the profits.

R

Registration Fee

The upfront payment traders make to enter a prop firm’s evaluation program. This fee varies based on account size and program type and constitutes the primary revenue source for many prop firms.

Reset

Starting the evaluation again after failing to meet the requirements. May be offered free or at a discounted rate under certain conditions at some firms.

Risk Management Terms

The collective terminology describing how prop firms control and limit potential losses.

Risk-Reward Ratio

The relationship between potential loss and potential gain in a trade. Many firms require maintaining specific risk-reward parameters (e.g., not risking more than 5x potential profit).

Use our reward-risk calculator to analyze the profitability of your trading strategy.

Rollover

The process of closing positions in an expiring futures contract and opening equivalent positions in the next contract month.

S

Scaling Plan

A systematic approach to increasing a trader’s capital allocation based on consistent performance and profit generation. Allows successful traders to gradually manage larger positions.

Scaling Profit Split

An increasing profit share percentage based on consistent performance or longevity with the firm. Rewards consistently profitable traders with higher splits.

Simulated Funded Account

An intermediate account after passing evaluation that uses simulated funds but applies all the rules and profit-sharing of a funded account. Many firms use this stage before providing real capital.

Stop-Limit Order

A combination order that becomes a limit order when a specified price is reached.

Stop Order

An order that becomes a market order when a specified price is reached.

Stop Hunting

Using excessive size to trigger market stops in illiquid market conditions. Considered market manipulation and universally prohibited.

T

Three-Step Evaluation

A more rigorous evaluation with three distinct phases, designed to thoroughly assess traders through multiple stages before providing access to funded accounts.

Tick Size

The minimum price movement allowed for a specific futures contract.

Tick Value

The monetary value of a single tick move. Calculated as the tick size multiplied by the contract’s multiplier.

Trade Minimum Requirement

The required number of trading days or trades needed to qualify for withdrawals or maintain account status. Prevents dormant accounts.

Trading Period

The timeframe within which traders must achieve the profit target and comply with trading rules during the challenge. May have minimum and/or maximum duration requirements.

Trading Platform

The software interface traders use to access markets and execute trades. Most prop firms use established platforms like NinjaTrader, TradeStation, or firm-customized solutions.

Trailing Drawdown

A dynamic loss limit that increases with profits but doesn’t decrease when profits decline. Protects both trader and firm capital as accounts grow.

Use our Intraday Trailing Drawdown Calculator to see if your strategy can stay within limits.

Two-Step Evaluation

The most common evaluation structure involving two consecutive phases—typically an initial evaluation followed by a verification phase—that traders must pass sequentially.

Conclusion

The terminology in the prop trading industry continues to evolve as firms adjust their programs and introduce new features. While this glossary covers the most common and universal terms, traders should always consult the specific rules and guidelines provided by their chosen prop firm, as implementation details may vary.

Understanding these fundamental concepts will help traders navigate the proprietary trading landscape regardless of which specific firm they choose to partner with. The core principles of risk management, consistent profitability, and ethical trading behavior remain constant across the industry.