Prop Trading Terms Explained: 15 Words You Need

Balance counts closed trades; equity adds open profit and loss.

Limits are checked on equity, so open losses can end an account.

Lots and pips turn a risk in dollars into an order size.

Account terms

Balance: the account value from closed trades and booked adjustments. It does not move while a trade is open.
Equity: balance plus or minus the profit and loss of open positions. A $10,000 balance with a $300 open loss is $9,700 equity.
Drawdown: how far equity has fallen from a reference point, such as the starting balance or yesterday’s close. A $10,000 account at $9,600 equity is in a $400 drawdown from its start.

Rules usually set the floor from a balance and test it against equity, so you need both numbers in view while a trade is open.

Anatomy of a candle

Limit terms

Daily loss limit: the most equity may fall in one trading day, measured from the previous day’s closing balance. It is 5% on the 1-Step and resets at 17:00 New York time. On MFC Stocks it is a daily pause: trading stops for the day, the account stays open.
Maximum loss: the lowest equity may ever reach. A static floor stays where it started (2-Step); a trailing floor rises with your best balance (1-Step, Instant Funded, MFC Stocks, Prediction Markets).
Hard breach: a rule break that ends the account, such as equity touching a floor or no trade for 30 days.

Your limits on the phone: daily and overall loss left, updated live · Demo account

Evaluation and funded terms

Phase: one stage of an evaluation. The 2-Step has 2, the 1-Step 1, Instant Funded none.
Profit target: the gain that completes a phase, for example 10% on the 1-Step, or $1,000 on $10,000.
Profit split: your share of eligible profit on a funded account, 80% at the start on the 1-Step.
Payout cycle: the interval between payout requests, such as every 14 days on the 2-Step. The first request has its own waiting period, counted from the first funded trade.
Consistency rule: on funded accounts, no single day may make up more than 35% of total profit. With $5,000 of total profit, the best day may be at most $1,750.
Add-on: an option chosen at checkout that changes one condition, such as a higher split, news trading or weekend holding. It does not widen the loss limits.

Order terms

Lot: the unit of order size. A standard lot is 1.00, a mini lot 0.10, a micro lot 0.01. The instrument details in the Terminal show the contract size behind one lot.
Pip: the standard price step on a forex pair, 0.0001 on EURUSD. One standard lot of EURUSD moves about $10 per pip.
Leverage: how much position a given margin controls, for example 1:50 on 1-Step forex. It changes the margin a trade needs, not what you lose when the stop is hit.

Put three of these together and you can size any trade: risk in dollars ÷ (stop in pips × value per pip) = lots. With $50 of risk and a 25-pip stop on EURUSD, that is 0.20 lots.

Quiz

Check yourself

0 / 3

1Balance $10,000, open loss $300. What is equity?

2What does a trailing floor do?

3What does leverage change?

MyFundedCapital School

Start here checklist

Rules as of 17 Oct 2026. Tick each line before your next session.

Rule	1-Step Challenge	2-Step Challenge	Instant Funded	MFC Stocks	Prediction Markets
Profit target	10%	8% + 5%	—	7%	10%
Daily loss limit	5%	5%	3%	2% daily pause	3%
Maximum loss	10% · trailing	10% · static	6% · trailing	5% · trailing	6% · trailing
Consistency	35%	35%	35%	35%	35%
First payout	after 7 days	after 14 days	after 14 days	after 14 days	after 7 days
Then every	7 days	14 days	7 days	14 days	7 days
Profit split	80% → 95%	80% → 95%	70% → 80%	70% → 80%	75% → 90%

1. How does a prop firm challenge work?

The fee is the most you can lose: you deposit no trading capital.
Two loss limits apply at once, and open losses count toward both.
Passing starts a review and verification; payouts follow a fixed schedule.

2. What is the difference between a prop firm account and a broker account?

A broker holds your deposit; a prop firm sells access to an account for a fee.
At a prop firm the fee caps your loss, but the rules decide how long the account lives.
A withdrawal is your money; a payout is your share of eligible profit.

3. Which funded account program fits you?

Your market narrows the choice before any rule does.
Lower entry price usually means more phases; no phases means tighter limits.
Compare the daily limit in dollars, not the headline account size.

4. How do you choose a funded account size?

Rules are percentages, so a bigger account is not easier, only larger.
Pick the size where 0.5% risk in dollars feels routine to you.
Small accounts meet payout minimums later; large ones meet the cap sooner.

5. What do prop trading terms like drawdown and equity mean?

Balance counts closed trades; equity adds open profit and loss.
Limits are checked on equity, so open losses can end an account.
Lots and pips turn a risk in dollars into an order size.

myfundedcapital.com/learn/

Questions

Why do the rules use closing balance and equity at the same time?

The closing balance sets where the floor sits for the day; current equity is what gets tested against it. That way an open loss can breach the account, but open profit does not raise your floor.

Is a stop loss required?

The 1-Step and 2-Step do not require one, but the loss limits still apply, and a stop is the simplest way to keep each trade inside them.