Risk management for prop firm traders
Build a risk plan that keeps you inside challenge rules while letting your strategy play out over many trades.
1. Know your limits
Proper risk management is what separates traders who survive prop firm challenges from those who burn multiple accounts. The goal is not to avoid all losses, but to keep losses small enough that the evaluation rules work in your favour.
Start by writing down the maximum drawdown and daily loss limit for your challenge. Use these to derive personal limits that are slightly stricter than the firm's official numbers.
- Set a daily stop that is below the firm's daily loss limit.
- Avoid trading again once you hit your daily stop, even if you see new setups.
- Reduce risk after a drawdown instead of increasing it to "make it back."
2. Position sizing
Consistent position sizing helps smooth your equity curve and makes it easier to respect rules. Many traders use a fixed percentage of the account per trade.
- Choose a percentage that still works if you hit a streak of losses.
- Keep correlated positions small to avoid doubling risk on similar trades.
- Avoid scaling up size immediately after a big win.
3. Planning for variance
Even good strategies experience drawdowns. Your risk plan should assume that losing streaks will happen during the challenge window.
- Backtest or review historical trades to understand typical drawdowns.
- Simulate a worst-case scenario and confirm it still fits within challenge rules.
- Limit the number of trades per day to avoid impulsive overtrading.
4. Psychology and process
Emotional decisions are the fastest route to a rule violation. Having a simple process you follow each session reduces the chance of impulsive decisions.
- Use a short pre-trading checklist to confirm market conditions and risk.
- Review trades weekly rather than judging your performance trade by trade.
- Step away from the screen after large wins or losses to reset.
5. Linking it all together
Combine this guide with the ones on how prop firm challenges work and how to get funded to build a simple but robust approach to prop firm trading.
Frequently asked questions
What is a good risk per trade for prop firm challenges? Many funded traders risk between 0.25% and 0.5% per trade, which allows for normal losing streaks without breaching daily or overall loss limits.
How do I calculate position size for a prop firm account? Decide your risk per trade as a percentage of the account, then use your stop-loss distance and instrument value to compute lot size. A position sizing calculator can help you avoid mistakes.
Should I change risk after a winning or losing streak? Many traders reduce risk or pause after a drawdown and only scale up slowly after consistent performance, rather than after a single good day.
Compare prop trading firms
When you are ready to apply these risk principles to real programs, use the comparison tools on Prop Firm Compass to see rules, platforms, and evaluation models side by side.