The beginner glossary defines every basic prop trading term in plain English: what a prop firm is, what prop trading means, what a funded account and an evaluation actually are, and how the retail model differs from a hedge fund. Each entry links the full guide. Cross-references checked 28 October 2026.
Key Takeaways
- A prop firm supplies the capital; you supply the trading skill and keep a share of the profits.
- The retail model is: pay an evaluation fee, pass a rule-based challenge, trade a funded (usually simulated) account.
- Unlike a hedge fund, no outside investors are involved and no licence is normally required.
The Beginner Terms, Defined
Prop firm (proprietary trading firm). A firm that puts trading capital to work - traditionally its own money on a proprietary desk, and in the retail version a simulated account with a profit share for traders who pass an evaluation. What a prop firm is, in full. "Prop firm meaning" and "prop firm trading" are the same question phrased differently.
Prop trading. Trading a firm's capital rather than your own, for a split of the profits. "Prop trading meaning" is exactly this; the practical walkthrough is in what prop trading is.
Prop trading vs hedge fund. A hedge fund pools money from outside investors under heavy regulation - the SEC investor centre is the reference point for that side. A prop firm uses its own capital or a simulated account, takes no outside investors, and pays you a performance split instead of a salary plus bonus. The full comparison.
Prop firm account. Any account the firm gives you to trade: the evaluation account, then the funded account. How the capital, the rules and the restrictions attach at each stage: how funded trading accounts work.
Funded trading account. The account you get after passing. Usually simulated, always rule-bound, and the place where your split is calculated. Funded accounts explained.
Funded trader. A trader who has passed and holds a funded account - the end state of the whole process. What the status does and does not entitle you to: what a funded trader is.
Prop firm challenge. The rule-based evaluation you buy: a profit target, loss limits and behavioural rules on a simulated account. Pass it and you are funded. The challenge, explained.
Prop firm evaluation. The same thing under a different name - "evaluation" is the industry's preferred word for the challenge phases. Firms sell 1-phase and 2-phase versions; the two-phase format runs a harder first phase and a verification phase. Definition and variants sit inside the challenge guide.
Demo account. A simulated trading environment with live prices and no real money. Nearly all retail prop firms run both challenges and funded accounts on them, which is why the firms can enforce hard rules and still pay rewards. Do prop firms use demo accounts?
Where to Go Next
Once the vocabulary holds, the two decisions that follow are which rules you can live with and which firm to pay. The drawdown hub defines every risk rule, and our prop firm rankings compare the firms themselves. The complete A-to-Z stays on the main glossary, and the payouts hub covers what happens after you pass.
