Prop Firm Glossary 2026: 32 Evaluation, Drawdown and Payout Terms Defined

Evaluation terms

• **Evaluation (challenge)**: An evaluation, also called a challenge, is a paid test in which a trader must reach a profit target on a demo account without breaking the firm's risk limits. The two words mean the same thing across the industry, and passing earns a funded account.
• **Phase 1**: Phase 1 is the first stage of a two-step evaluation, commonly structured with the higher profit target, often 8 to 10 percent, under the same daily loss limit and maximum drawdown that apply in Phase 2 and on the funded account.
• **Phase 2**: Phase 2 is the second stage of a two-step evaluation, commonly structured with a lower profit target, often 4 to 5 percent, and sometimes no time limit. Its purpose is to confirm that the Phase 1 result was repeatable rather than lucky, and the [Phase 1 vs Phase 2 comparison](/blog/phase-1-vs-phase-2-prop-firm-challenge) covers what changes between them.
• **Instant funding**: Instant funding is an account model that skips the evaluation and gives the trader a funded, usually simulated, account immediately for a higher upfront fee, commonly with tighter drawdown limits and a lower starting profit split.
• **Profit target**: A profit target is the percentage gain on the starting balance a trader must reach to pass a phase, commonly structured between 4 and 10 percent. It is commonly measured on closed profit, so open trades usually do not count until they close.
• **Minimum trading days**: Minimum trading days is the smallest number of distinct days on which a trader must place at least one trade before passing a phase or requesting a payout, commonly structured between 0 and 10 days.
• **Maximum trading days**: Maximum trading days, also called the time limit, is the longest period a trader has to reach the profit target before the evaluation expires. Many firms now offer unlimited time; where a limit exists it is commonly 30 to 60 days per phase.

Risk limit terms

• **Daily loss limit**: A daily loss limit is the maximum an account may lose in a single trading day before the firm closes it, commonly structured at 4 to 5 percent of the starting or previous day's balance. How it is measured and when the day resets are compared in the [daily loss versus maximum drawdown guide](/blog/daily-loss-vs-max-drawdown).
• **Maximum drawdown**: Maximum drawdown is the total loss an account may sustain, measured from its starting balance or from its highest point, before it is closed, commonly structured at 8 to 12 percent of the starting balance across the whole life of the account.
• **Static drawdown**: A static drawdown is a maximum loss limit fixed at a set amount below the starting balance that never moves. If an account starts at $100,000 with a 10 percent static drawdown, the floor stays at $90,000 no matter how much profit is made.
• **Trailing drawdown**: A trailing drawdown is a maximum loss limit that moves up as the account makes money and never moves back down. Because the floor follows the account's peak, a trader can breach it after a winning run; the balance and equity variants are explained in the [trailing drawdown guide](/blog/trailing-drawdown-explained).
• **Equity-based versus balance-based drawdown**: Equity-based drawdown counts open floating profit and loss when measuring a limit, while balance-based drawdown counts only closed trades. Equity-based measurement is stricter, because a trade that goes deep into loss before recovering can breach the limit even though it closes in profit.
• **Breach**: A breach is any violation of a hard rule, most commonly the daily loss limit or maximum drawdown, that causes the firm to close the account. On an evaluation it ends the challenge; on a funded account it ends the funding, although profits already paid are normally kept.

Rule and conduct terms

• **Consistency rule**: A consistency rule is a limit on how much of total profit may come from a single day or trade, commonly structured so that no one day exceeds 30 to 50 percent of the total. It exists to stop a trader passing on one oversized bet, as the [consistency rule explainer](/blog/prop-firm-consistency-rule-explained) shows.
• **News trading restriction**: A news trading restriction is a rule that prohibits opening or holding positions within a window around scheduled high-impact economic releases, commonly structured as 2 to 5 minutes before and after. Some firms apply it only to funded accounts.
• **Weekend holding**: Weekend holding is the practice of keeping a position open from the Friday close to the Monday open, and many firms restrict or prohibit it on standard accounts. Swing-type accounts are the common exception.
• **Lot size limit**: A lot size limit is a cap on the maximum position size, in lots or contracts, that may be open at one time on a given account size, commonly structured to scale with the balance.
• **Reset**: A reset is a paid option to restart a failed or nearly failed evaluation from the original balance, commonly offered at a discount to the full challenge fee. It returns the account to day one and clears both the progress and the breach.

Funded account terms

• **Funded account**: A funded account is the account a prop firm allocates after a trader passes the evaluation, on which the trader keeps a share of profit as payouts. It carries similar risk limits to the evaluation, and keeping it is a separate skill from passing.
• **Simulated funded account**: A simulated funded account is a funded account that runs on demo data rather than live capital, with the firm paying the trader's share of profit from its own revenue. Most funded accounts in the industry are commonly structured this way, which is why the fine print says simulated or sim-funded.
• **Scaling plan**: A scaling plan is a schedule by which a firm increases a funded account's balance after the trader meets profit and time milestones, commonly structured as a fixed percentage increase, for example 25 percent, after each period of consistent profit. The [scaling plan guide](/blog/prop-firm-scaling-plan-explained) shows what usually triggers each step.

Payout terms

• **Profit split**: A profit split is the percentage of funded account profit that the trader keeps, commonly structured between 70 and 90 percent, with the firm keeping the remainder. Higher splits are often earned over time or bought as an add-on; the [profit split breakdown](/blog/prop-firm-profit-split-explained) compares the common structures.
• **Payout cycle**: A payout cycle is the interval at which a funded trader may request a withdrawal, commonly structured as every 14 days or monthly, with some firms offering on-demand withdrawals after the first. The cycle usually starts on the first funded trade.
• **First payout**: A first payout is a funded trader's initial withdrawal, commonly subject to extra conditions such as a minimum number of trading days, a minimum profit amount, and identity verification. It is where traders discover the difference between passing and getting paid.

Automation terms

• **EA (expert advisor)**: An expert advisor, or EA, is a program that runs inside MetaTrader and opens, manages, and closes trades according to coded rules; the equivalent is a cBot on cTrader or a strategy on NinjaTrader. Whether a firm allows EAs depends on its policy, and the [guide to AI trading bots for prop firms](/blog/best-ai-trading-bot-prop-firms-2026) lists what to check first.
• **Set file**: A set file is a text file that stores an EA's input parameters, such as risk per trade, sessions, and symbol settings, so the same configuration loads on any account. Because it decides whether the EA respects a firm's limits, it matters as much as the EA itself.
• **Copy trading**: Copy trading is a method of mirroring trades from one master account to one or more follower accounts automatically. Prop firms commonly allow copying between a trader's own accounts and prohibit copying from a third party, so the signal source is the rule that matters.
• **Martingale**: Martingale is a strategy that increases position size after each losing trade in order to recover the loss with the next win. It is incompatible with a fixed drawdown limit, because one long losing streak grows the position until the limit is breached.
• **Grid**: A grid is a strategy that places a ladder of buy and sell orders at fixed price intervals, usually without a stop loss, expecting price to return and close them in profit. It accumulates open losses that an equity-based drawdown counts, which is why [martingale and grid EAs fail on prop accounts](/blog/martingale-grid-ea-prop-firms).
• **VPS**: A VPS, or virtual private server, is a remote computer that runs a trading platform 24 hours a day so an EA keeps working when the trader's own machine is off, commonly located near the broker's server to reduce latency.

Execution terms

• **Slippage**: Slippage is the difference between the price at which an order was requested and the price at which it was filled. It is normal around news, and it matters on prop accounts because a slipped stop loss can push a single loss past the daily limit.
• **Spread**: The spread is the difference between the bid price and the ask price on an instrument, and it is the cost paid on every trade before any commission. Spreads widen around news and at session open and close.

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