Funded Trading Vocabulary: Complete Guide to Terms

The world of funded trading has its own language. Mastering this terminology will not only help you better understand prop firm rules, but will also allow you to communicate effectively with other traders and make more informed decisions.

In this comprehensive guide, we have compiled all the terms you need to know, organized by categories to facilitate your learning.

Prop Firms and Evaluations

Challenge / Evaluation

A test you must pass to demonstrate your trading skills before accessing a funded account. It typically includes profit targets and loss limits that you must respect during a specified period.

Combine

A term used primarily by Topstep to refer to their evaluation process. It works the same as a challenge: you must reach objectives while respecting risk rules.

Evaluation Phase

Period during which your trading is evaluated. Some prop firms have one phase (1-step), others have two phases (2-step), and each phase has its own objectives.

Funded Account

A trading account you receive after passing the evaluation. You trade with the prop firm's capital and receive a percentage of the profits you generate.

Instant Funding / Direct Account

A prop firm model where you access a funded account directly without needing to pass a prior evaluation. It generally has stricter rules or higher initial cost.

Payout / Withdrawal

The process of withdrawing earnings generated in your funded account. Each prop firm has its own payout policies (frequency, minimums, payment methods).

Profit Split / Profit Division

The percentage of profits that corresponds to you as a trader. For example, an 80/20 profit split means you receive 80% of the profits and the prop firm keeps 20%.

Reset

An option offered by some prop firms to restart your evaluation if you fail it, generally for a lower cost than buying a new account. Your progress returns to zero.

Simulated Account

An account that replicates real market conditions but without real capital at risk. Most futures prop firms operate with simulated accounts even after being "funded."

Scaling Plan

A program that allows you to increase the size of your account and the number of contracts you can trade as you demonstrate consistency and profitability.

Risk Management

Drawdown / Capital Reduction

The decrease in the value of your account from its highest point. It is a critical measure that prop firms constantly monitor.

Trailing Drawdown / Moving Drawdown

A type of drawdown that moves upward with your profits but never goes down. If your account grows from $50,000 to $51,000, your drawdown limit rises proportionally.

EOD Drawdown / End of Day Drawdown

Drawdown calculated at the end of the trading day (End of Day). It only updates when you close positions, not in real-time during operations.

Intraday Drawdown

Drawdown calculated in real-time during the trading session. More restrictive than EOD because it counts unrealized losses.

Static Drawdown

Drawdown that does not move. If your maximum loss limit is $2,500, it will always be $2,500 no matter how much you earn. It is the most favorable type for the trader.

Daily Loss Limit

The maximum amount you can lose in a single trading day. Exceeding this limit generally results in rule violation.

Max Loss / Maximum Loss

The total maximum amount you can lose before losing your account. Also known as "maximum drawdown" or "trailing threshold."

Profit Target

The profit goal you must reach to pass an evaluation or qualify for a payout. For example, reaching $3,000 in profit to pass the challenge.

Consistency Rule

A requirement that no single day represents more than a certain percentage of your total profits. It seeks to prevent passing the evaluation with just one lucky day.

Minimum Trading Days

The minimum number of days you must trade to complete an evaluation or qualify for payout. It encourages consistency over quick results.

Futures and Contracts

Futures

Financial contracts that obligate the buyer to buy (or the seller to sell) an asset at a future date at a predetermined price. They are highly liquid and leveraged derivatives.

Contract

A standard unit of futures trading. Each instrument has different contract specifications (size, tick value, hours, etc.).

Standard Contract

The full size of a futures contract. For example, one standard ES contract represents $50 per point of the S&P 500.

Mini Contract

A reduced version of the standard contract, typically 1/5 the size. The E-minis are the most popular in index futures.

Micro Contract

An even smaller version, typically 1/10 of the mini or 1/50 of the standard. Ideal for traders with small accounts or for precise risk management.

Tick

The minimum price movement an instrument can make. For example, in ES the minimum tick is 0.25 points.

Tick Value

The monetary value of a tick. In ES, a tick (0.25 points) is worth $12.50 per contract. In MES (micro), it is worth $1.25.

Point

A unit of price measurement. One point in ES equals 4 ticks ($50). Do not confuse with tick.

Lot

An alternative term for contract. "Trading 2 lots" means trading 2 contracts.

Margin

The amount of money required as collateral to open a position. In futures, margin is a fraction of the total contract value.

Intraday Margin

Reduced margin required for positions that close the same day. Generally much lower than overnight margin.

Overnight Margin

Margin required to hold positions open outside regular market hours. Significantly higher than intraday.

Leverage

The ability to control larger positions with less capital. Futures are inherently leveraged instruments.

Notional Value

The total value of the contract in dollars. For example, if ES is at 5000 points, the notional value is $250,000 (5000 × $50).

Popular Instruments

ES (E-mini S&P 500)

Futures contract on the S&P 500 index. One of the most liquid instruments in the world. Tick: 0.25 points ($12.50).

MES (Micro E-mini S&P 500)

Micro version of ES. 1/10 the size. Tick: 0.25 points ($1.25). Ideal for small accounts.

NQ (E-mini Nasdaq 100)

Futures contract on the Nasdaq 100 index. More volatile than ES. Tick: 0.25 points ($5.00).

MNQ (Micro E-mini Nasdaq 100)

Micro version of NQ. 1/10 the size. Tick: 0.25 points ($0.50).

YM (E-mini Dow)

Futures contract on the Dow Jones Industrial Average. Tick: 1 point ($5.00).

MYM (Micro E-mini Dow)

Micro version of YM. Tick: 1 point ($0.50).

RTY (E-mini Russell 2000)

Futures contract on the Russell 2000 small-cap index. Tick: 0.1 points ($5.00).

M2K (Micro E-mini Russell 2000)

Micro version of RTY. Tick: 0.1 points ($0.50).

CL (Crude Oil)

Futures contract on WTI crude oil. Very volatile. Tick: 0.01 ($10.00 per contract).

MCL (Micro Crude Oil)

Micro version of CL. 1/10 the size. Tick: 0.01 ($1.00).

GC (Gold)

Futures contract on gold. Tick: 0.10 ($10.00 per 100-ounce contract).

MGC (Micro Gold)

Micro version of GC. Tick: 0.10 ($1.00 per 10-ounce contract).

SI (Silver)

Futures contract on silver. Tick: 0.005 ($25.00 per 5,000-ounce contract).

ZB (30-Year Treasury Bond)

Futures contract on 30-year Treasury bonds. Popular for interest rate trading.

6E (Euro FX)

Futures contract on the EUR/USD pair. Tick: 0.00005 ($6.25).

General Trading Terminology

Long

A buy position. You bet that the price will rise. "Going long" or "being long" means having an open buy position.

Short

A sell position. You bet that the price will fall. In futures, you can go short as easily as going long.

Entry

The point where you open a position. The entry price determines your reference point for profits and losses.

Exit

The point where you close a position. It can be with profit (take profit), with loss (stop loss), or at break-even.

Stop Loss

An order that automatically closes your position when the price reaches a predetermined loss level. An essential risk management tool.

Take Profit / Target

An order that automatically closes your position when it reaches a predetermined profit level.

Break-even

The point where your trade has neither profit nor loss. "Moving stop to break-even" means adjusting the stop loss to the entry price.

Risk/Reward Ratio

The relationship between what you risk and what you seek to gain. An R:R of 1:2 means risking $100 to gain $200.

R (Risk Unit)

A standard measure based on your risk per trade. If you risk $100 and gain $300, you gained 3R.

Position Sizing

Determining how many contracts to trade based on your capital and risk tolerance. Crucial for risk management.

Scaling In

Opening a position gradually instead of all at once. Allows averaging the entry price.

Scaling Out

Closing a position gradually, taking partial profits while letting the rest run.

Averaging Down

Adding to a losing position to improve the average price. A risky strategy not recommended for new traders.

Trading Styles

Scalping

Ultra-short-term trading style. Trades last seconds to minutes, seeking to capture small movements.

Day Trading

Intraday trading. All positions are opened and closed on the same day. No overnight exposure.

Swing Trading

Holding positions for days or weeks to capture larger movements. Requires overnight margin.

Position Trading

Holding positions for weeks or months. Closer to investing than active trading.

News Trading

Trading based on news events and economic data. Requires speed and understanding of news impact.

Algorithmic Trading

Using automated programs to execute trades. Also known as algo trading or automated trading.

Analysis and Market

Price Action

Analysis based solely on price movement, without indicators. Includes candlestick patterns, key levels, and market structure.

Support

A price level where historically the market has found buyers and bounced upward.

Resistance

A price level where historically the market has found sellers and bounced downward.

Trend

The general direction of the market. Can be bullish (uptrend), bearish (downtrend), or sideways (range).

Breakout

When price breaks through a significant support or resistance level with conviction.

Pullback / Retracement

A temporary movement against the main trend. Potential opportunity to enter in the direction of the trend.

Consolidation

A period where price moves sideways in a narrow range. Typically precedes a breakout.

Volume

The number of contracts traded in a period. High volume confirms movements; low volume suggests weakness.

Volatility

A measure of how much price fluctuates. High volatility means large and rapid movements.

Gap

Empty space between one session's close and the next session's open. Gaps often act as price magnets.

Session

A defined trading period. The main sessions are Asia, London, and New York, each with unique characteristics.

RTH (Regular Trading Hours)

Regular market hours. For U.S. index futures, typically 9:30 AM - 4:00 PM ET.

ETH (Extended Trading Hours) / Globex

Extended trading hours. Futures trade almost 24/5, but the highest liquidity is during RTH.

Opening Range

The price range established in the first minutes of the session. Many strategies use this range as a reference.

VWAP (Volume Weighted Average Price)

Volume-weighted average price. Indicates the "fair" price of the day and acts as dynamic support/resistance.

Platforms and Execution

Order Types

Market Order: Executes immediately at the best available price. Guarantees execution but not the price.

Limit Order: Only executes at the specified price or better. Guarantees the price but not execution.

Stop Order: Becomes a market order when price reaches the specified level. Used for stop losses.

Stop Limit Order: Becomes a limit order (not market) when triggered. More control but risk of non-execution.

Fill / Execution

When your order is completed. "Got filled" means your order was executed.

Partial Fill

When only part of your order is executed. More common with large limit orders.

Slippage

The difference between the expected price and the actual execution price. Occurs in fast markets or with low liquidity.

Spread

The difference between the best buy price (bid) and the best sell price (ask). Liquid markets have small spreads.

Bid

The highest price someone is willing to pay. If you sell, you get the bid price.

Ask / Offer

The lowest price at which someone is willing to sell. If you buy, you pay the ask price.

DOM (Depth of Market)

A tool that shows all pending buy and sell orders at different price levels. Also called "Level 2" or "Order Book."

Tape / Time & Sales

A real-time record of all executed transactions, showing price, size, and time.

Bracket Order

An order that automatically places stop loss and take profit at the same time as your entry.

OCO (One Cancels Other)

Two linked orders where execution of one automatically cancels the other.

Simulated Trading and Preparation

Paper Trading / Simulated Trading

Practicing trading without real money. Essential for developing skills before risking capital.

Sim Account / Simulation Account

An account that replicates real market conditions but with fictitious money.

Backtesting

Testing a strategy using historical data to evaluate how it would have performed.

Forward Testing

Testing a strategy in real-time (usually in simulation) to validate backtesting results.

Trading Journal

A detailed record of all your trades. A fundamental tool for improving and finding patterns in your trading.

Trading Plan

A document that defines your strategy, entry/exit rules, risk management, and routines. Trading without a plan is gambling.

Performance Metrics

Win Rate / Success Rate

The percentage of winning trades. 50% means you win half of the trades.

Average Win

The average amount you win on winning trades.

Average Loss

The average amount you lose on losing trades.

Expectancy / Mathematical Expectation

The expected average profit per trade considering win rate and average size of wins/losses.

Profit Factor

Gross profits divided by gross losses. A profit factor of 2 means you earn $2 for every $1 you lose.

Sharpe Ratio

A measure of risk-adjusted return. Higher is better. It considers the volatility of your results.

Maximum Drawdown

The largest loss from a peak to a trough in your equity curve. It measures the worst historical scenario.

Trading Psychology

FOMO (Fear Of Missing Out)

Fear of missing an opportunity. Leads to entering trades without a valid setup or chasing price.

Revenge Trading

Trading impulsively after a loss trying to recover quickly. Generally leads to greater losses.

Tilt

An altered emotional state where you make irrational decisions. A term originated in poker.

Overtrading

Excessive trading, either in number of trades or position size. Often a result of FOMO or revenge trading.

Analysis Paralysis

The inability to act due to excessive analysis. There is always more information, but at some point you must decide.

Discipline

The ability to consistently follow your trading plan without being swayed by emotions.

Edge / Advantage

The statistical advantage your strategy has over the market. Without an edge, you are gambling.

Conclusion

Mastering this vocabulary is the first step to becoming a professional trader. It will not only help you better understand prop firm rules and market dynamics, but will also allow you to learn faster from other educational resources and communicate effectively with the trading community.

Tip: Save this page in your favorites and consult it every time you encounter a term you don't remember. Over time, all this vocabulary will become second nature.

Do you have any terms you think we should add? Let us know in the comments!