Crypto prop trading comes with a dense layer of jargon. Drawdown floors, trailing thresholds, HWMs, consistency rules, profit splits — every firm uses these terms, but definitions vary and precision matters. Getting them wrong costs you a funded account.
This glossary covers every term you'll encounter across crypto prop firm rules, challenges, payouts, and trading platforms. Use it as a reference when evaluating firms or when something in a ruleset doesn't make sense. For a broader overview of how the model works, see what is crypto prop trading.
Highlights of this article
- Drawdown has 3 distinct variants — static, tick-by-tick trailing, and EOD trailing — each creating a different trading environment
- Profit split, HWM, and drawdown floor are the 3 numbers that determine how much you keep and when your account ends
- Consistency rules limit how much of your profit can come from one day — not all firms use them
- Perpetual swaps and funding rates are the instruments most crypto prop trading is conducted on
- The glossary covers 35+ terms across accounts, challenges, drawdown, payouts, trading rules, platforms, and performance
Account and Funding Terms
Prop Firm (Proprietary Trading Firm) A company that provides traders with capital to trade. The trader keeps a share of any profits generated. The firm bears the downside risk up to the drawdown limit. In crypto, prop firms typically use simulated or model-based accounts rather than placing real orders in the market.
Funded Account An account credited with the prop firm's capital after a trader passes the evaluation phase. The trader manages this account under specific rules. Profits above the starting balance are split between the trader and the firm according to the agreed profit split ratio. See how it works for the full step-by-step process.
Simulated Account An account that mirrors live market conditions but does not execute real trades in the underlying market. Most crypto prop firms use simulated accounts for both evaluation and funded phases. Performance is tracked against real market data, but no actual crypto is bought or sold on an exchange.
Capital Allocation The account size a trader is assigned after passing a challenge. Common allocations start at $5,000 or $10,000 and scale up to $100,000 or more depending on the firm's offering and any scaling plan.
Scaling Plan A programme that increases a trader's capital allocation after consistent performance milestones are hit. For example, a firm might increase your allocation by 25% each time you earn a 10% profit over 3 consecutive months. Not all firms offer scaling.
Refundable Fee The cost of entering a challenge. Most firms refund this fee on the first payout of a funded account. If you fail the challenge, the fee is not returned.
Challenge and Evaluation Terms
Challenge (Evaluation Phase) The period during which a trader must demonstrate consistent, rule-abiding performance before receiving a funded account. Challenges typically set a profit target (e.g. 8%) that must be reached without breaching any drawdown or rule violations. See the full breakdown in how to pass a crypto prop challenge.
1-Step Challenge An evaluation with a single phase. Pass one profit target without breaking any rules, and you receive a funded account directly. Simpler but often stricter on individual rule thresholds.
2-Step Challenge An evaluation split across 2 phases. Phase 1 typically has a higher profit target (e.g. 8%). Phase 2 has a lower target (e.g. 5%) and confirms consistent performance. 2-step challenges are the most common format in crypto prop trading.
Profit Target The minimum return a trader must achieve during a challenge phase. Expressed as a percentage of the starting account balance. For example, an 8% profit target on a $10,000 account requires reaching $10,800 before hitting any drawdown limit.
Minimum Trading Days The minimum number of calendar or trading days a trader must be active during a challenge phase. Designed to prevent traders from attempting to pass a challenge by placing a single large lucky trade. Most firms require 5 to 10 minimum trading days.
Consistency Rule A rule that limits how much of your total profit can come from a single trading day. Typically set at 30-50% of total profits. If you earn 70% of your total profit in one session, you breach the consistency rule even if you hit the profit target. Many traders specifically seek out crypto prop firms with no consistency rule to avoid this constraint.
Drawdown Terms
Drawdown The decline in account equity from a peak to a trough, expressed as a percentage or dollar amount. In prop trading, exceeding the maximum drawdown limit results in an immediate account breach and termination.
Maximum Drawdown (Max DD) The total loss permitted on an account before it is closed. Usually set as a fixed percentage of the initial balance (e.g. 10%). Breaching the max DD at any point ends the account, regardless of overall profit.
Daily Drawdown Limit The maximum loss permitted within a single trading day. Commonly set at 4-5% of the account balance. Breaching the daily limit results in immediate account closure, even if the account is profitable overall. The reset point (end of trading day, UTC midnight, etc.) varies by firm. Velotrade's exact thresholds are published at /rules.
Trailing Drawdown A drawdown limit that moves upward as the account's equity grows. The floor tracks profits, locking in gains as a new minimum threshold. Trailing drawdown gives traders more room to operate as they become profitable, rather than fixing the floor at the initial balance.
EOD Trailing Drawdown A trailing drawdown variant where the floor only moves at end of day, based on the account's closing equity. Intraday movements do not affect the floor. This gives traders more flexibility during sessions — a position can run a large intraday drawdown without triggering the floor, as long as equity recovers by close. Velotrade uses EOD trailing drawdown. See the detailed comparison: EOD trailing vs tick-by-tick trailing drawdown.
Tick-by-Tick Trailing Drawdown A trailing drawdown variant where the floor moves upward in real time as equity peaks. Every new equity high immediately raises the floor. This is the more restrictive variant — open positions can push the floor up while the trade is running, leaving less room for normal market fluctuation. Common in futures prop firms.
Drawdown Floor The current minimum equity level an account must maintain. If equity drops to or below the floor, the account is breached. The floor is set at account open and, in trailing models, rises as equity grows.
High-Water Mark (HWM) The highest equity level an account has ever reached. In EOD trailing drawdown models, the floor is recalculated based on the HWM set at the previous day's close. Once the HWM is established, it never moves down — only up.
Fixed Drawdown A drawdown model where the floor is set at the initial balance and never moves, regardless of profits made. Also called "static drawdown." Common in some prop firm structures but not used by Velotrade.
Payout and Profit Terms
Profit Split The percentage of trading profits the trader keeps. The remainder goes to the firm. Common splits range from 70/30 to 90/10 in the trader's favour. A 90% profit split means if you generate $1,000 in profit, you receive $900. To compare splits across the top firms, see best crypto prop firms.
Payout The withdrawal of earned profits from a funded account. Most firms process payouts on a monthly cycle. Some offer bi-weekly or on-demand payouts above a minimum threshold. The refundable challenge fee is typically returned on the first payout.
Payout Threshold The minimum profit balance required before a withdrawal can be requested. Usually set at a fixed dollar amount or a percentage of account size.
Trading Rules and Restrictions
News Trading Placing trades immediately before or during high-impact macroeconomic or crypto-specific news events (e.g. CPI releases, Fed announcements, major protocol upgrades). Many prop firms prohibit news trading due to the extreme volatility and slippage risk. Some crypto-focused firms allow it. Check the full list of crypto prop firms that allow news trading.
Weekend Holding Holding open positions over a weekend (Friday close to Sunday open). Some prop firms prohibit weekend holding to avoid the gap risk when markets reopen. Firms that allow weekend holding give traders more strategic flexibility, particularly important in 24/7 crypto markets. For a checklist of what to verify before choosing a firm, see how to evaluate a crypto prop firm.
Lot Size / Position Size The volume of a trade, measured in contracts or base currency units. Prop firms set maximum position size limits to control risk. Exceeding the maximum lot size on a single trade or at any one time typically results in an immediate rule breach.
Leverage The ratio of notional trade size to the capital deployed. A 10x leverage position on a $1,000 account controls $10,000 of crypto. Higher leverage amplifies both profits and losses. Prop firms cap maximum leverage to limit exposure.
Hedging Placing offsetting positions to reduce directional exposure. Some prop firms permit hedging; others ban it. In crypto markets, hedging strategies include holding short perpetual swap positions against a long spot position.
Martingale / Grid Trading Strategies that increase position size after losses (martingale) or place a grid of buy and sell orders across a price range (grid trading). Most reputable prop firms prohibit these strategies as they can generate large unrealised losses that mask account health.
Platform and Market Terms
dxTrader A professional trading platform used by several crypto prop firms, including Velotrade. Offers native crypto pairs, clean order entry, and account analytics. An alternative to MetaTrader with a more modern UI and crypto-native feature set.
Perpetual Swap (Perp) A crypto derivatives contract with no expiry date that tracks the price of an underlying asset (e.g. BTC/USD). Unlike futures, perps have no settlement date — positions can be held indefinitely. Most crypto prop trading is conducted on perpetual swap instruments.
Funding Rate A periodic payment exchanged between long and short perpetual swap holders. When the funding rate is positive, longs pay shorts. When negative, shorts pay longs. Funding rates keep the perp price anchored to the spot price. Active positions accumulate funding costs (or gains) over time. See the deeper explanation in what are funding ticks.
Spread The difference between the bid price and the ask price on a trading instrument. Wider spreads increase the cost of entering and exiting trades. Crypto spreads widen significantly during low-liquidity periods and major news events.
Slippage The difference between the intended execution price and the actual fill price. Occurs when market orders are executed during high volatility or low liquidity. Slippage can turn a planned entry into an unfavourable fill, which matters especially when running tight drawdown limits.
Performance Metrics
Win Rate The percentage of trades that close in profit. A high win rate does not guarantee overall profitability — it must be considered alongside average risk-reward ratio. A 40% win rate can be highly profitable with a 3:1 R:R ratio.
Risk-Reward Ratio (R:R) The ratio of potential profit to potential loss on a trade. A 2:1 R:R means you target $200 in profit for every $100 risked. Consistent R:R management is one of the primary factors in passing prop challenges and maintaining a funded account.
Equity Curve A chart showing the growth or decline of account equity over time. A smooth, upward-trending equity curve signals consistent execution. Erratic or step-down equity curves raise concerns about strategy quality and risk management.
Drawdown Recovery The percentage gain required to recover from a drawdown. A 10% drawdown requires an 11.1% gain to recover. A 20% drawdown requires 25%. The maths compounds quickly — keeping individual drawdowns small makes recovery far easier. This concept is explored in never get liquidated again in prop trading.
Ready to apply these terms in a live challenge? Start your Velotrade challenge →
The definitions above reflect general industry usage. Always verify the exact definition used by each prop firm in their own terms and conditions, as specific thresholds and mechanics vary across firms. For Velotrade-specific answers, see the FAQ or read the Velotrade review.
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About the author
Vittorio De Angelis
Executive Chairman
Former equity-derivatives trader at JP Morgan, Dresdner Kleinwort and Bank of America in London. Later Head of Brokerage at a global broker in Hong Kong.
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