Prop Firm Risk Management Guide
The only risk management guide you need for prop firms. Three proven strategies with exact formulas: Conservative for 100% pass rate, Normal for most traders, and Aggressive for experienced traders. Six-figure trader reveals how he generated $155,000 from $500 investment.
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If you're watching this, likely you want to get funded. Maybe you've failed a couple challenges. Maybe you got funded but didn't get to the payout and now can't get funded again. Or you're just being introduced to prop firms—in which case, welcome.
In this guide, I'm going to show you the perfect risk management for prop firms. Yes, I'll give you a strategy to pass 100% of challenges you take (as long as you're profitable). But I'll also explain why you DON'T want to pass 100% of challenges.
Why Listen to This? I've made well over six figures trading these markets. I've been trading prop firms for years, and only in the last 2 years was I able to withdraw these six figures. Before that, I was stuck in break-even, always blowing challenges, never making real money. Risk management was what kept me stuck—and switching it up is what set me free.
The First Critical Question: Are You Profitable?
Before we dive into strategies, you need to answer this honestly: Are you profitable? Yes or no?
Prop firms have to be used as a tool. If you're not profitable, you're just going to be liquidity for traders like me who get payouts. We know prop firms don't care about you—they want you to be unprofitable so you pay out the profitable traders.
Critical Reality Check: If you are NOT profitable, don't go for prop firms. Focus on becoming profitable first. You need to stay in the cycle of "while you're not profitable, focus on becoming profitable first." Only then do we proceed.
If the answer is yes—you ARE profitable—then let's proceed to the next question: Have you ever made money from trading?
I'm going to cover the "yes" path first because you need to understand this mindset to understand the "no" adjustments later.
The Three Risk Management Approaches
Once you're profitable and have made money trading, you choose your approach based on experience, goals, and risk tolerance. Here are the three strategies:
| Strategy | Risk Per Trade | Pass Rate | Who It's For |
|---|---|---|---|
| Conservative | 0.25% | 100% (if profitable) | Almost no one |
| Normal | 0.5% - 2% | Low risk of failing | 90% of traders |
| Aggressive | 1.5% - 4% | Higher failure rate | Experienced, multi-payout traders |
Strategy #1: Conservative (0.25% Risk)
No Risk of Failing Unless You're Unprofitable
With the conservative approach, you risk 0.25% per trade.
Why is this a 100% pass rate? Because the only way you can lose a challenge risking 0.25% is by losing if you have 10% max drawdown, you'd have to lose 40 trades in a row to reach 10% drawdown.
If you take 40 losses in a row, you are NOT a profitable trader. You probably lied earlier.
The Math
To pass FTMO Phase 1, you also need 10% profit target. That means you need 40 winning trades (at 1:1 risk-reward) to pass Phase 1, plus another 20 wins for Phase 2.
10% Profit Target ÷ 0.25% = 40 wins needed
Who Is This For?
I would tell you almost no one.
Here's why: If you're thinking of using this risk management, you likely are:
- Using an account size that is too high
- Not confident in your strategy
Better Alternative: Reduce the account size. If you're going for a $50K challenge and don't want to lose it, go for a $10K challenge instead and be okay with losing. Why? Because risking 0.25%, you'll be stuck for 6 months trying to pass a challenge. Meanwhile, someone with a $10K account already got a payout.
The reason people risk so little is usually discomfort with the money put up front for the challenge. If you want the 100% pass rate but it takes forever, you're probably not confident or the risk is too much for your balance.
My recommendation: Focus on being more confident and reduce account size rather than using 0.25% risk.
Strategy #2: Normal (0.5% - 2% Risk) - RECOMMENDED
Low Risk of Failing, Takes Time to Get Funded
This is what I recommend to 90% of you watching. With the normal approach, you risk between 0.5% and 2% per trade using a specific formula.
The Formula
FTMO Example:
- Max drawdown: 10%
- Trades per week: 5
- Calculation: (10% ÷ 2) ÷ 5 = 5% ÷ 5 = 1% risk per trade
If you take 10 trades per week:
- (10% ÷ 2) ÷ 10 = 0.5% risk per trade
If you take 3 trades per week:
- (10% ÷ 2) ÷ 3 = 5% ÷ 3 = 1.67% risk per trade
Why This Formula Works
This formula is incredibly valuable because it translates to: For you to reach full maximum drawdown and lose the challenge, you would have to lose TWO WEEKS IN A ROW—every single trade.
The Logic Behind Normal Strategy
Max drawdown ÷ 2 = gives you two weeks
÷ Trades per week = the number you risk per trade
Question: When was the last time you had a 2-week losing streak where you didn't win ONE trade?
For a profitable trader, the probability of this is very low. That's why it's low risk of failing.
Who Is This For?
- Traders going for their first challenges
- Traders wanting to minimize risk of failing
- Traders taking the plunge into prop firm trading
- Traders aiming for their first payout
I recommend this to you if:
- You're getting into prop firm trading
- You don't know yet how to approach it
- You haven't been consistent for a long time
This approach isn't as volatile, giving you time to build confidence and consistency.
Strategy #3: Aggressive (1.5% - 4% Risk)
Get Through Challenges Faster, Focus on Making Money When Funded
The aggressive approach is where you go through challenges faster and focus on making money when you get funded. Your results will be more volatile, you'll sometimes fail, but you get to funding quicker.
The Formula
FTMO Example:
- Daily drawdown: 5%
- Minus buffer: 2%
- Trades per day: 2
- Calculation: (5% - 2%) ÷ 2 = 3% ÷ 2 = 1.5% risk per trade
Your results are going to be more volatile. You will go quicker into drawdown, and sometimes you will fail. And that is fine.
Real Example: I've done this. I spent $500 on challenges and now I'm between $100,000 and $155,000 in payouts. Do you think that's bad? It's perfect. My bank account doesn't worry.
Who Is This For?
Only traders who meet ALL these criteria:
- Profitable for longer periods of time (2+ years)
- Received multiple payouts
- Another high income stream
- Aiming for funding on LOWER account sizes
My Personal Example
- ✅ Profitable for 2 years - CHECK
- ✅ Received six figures in payouts - CHECK
- ✅ Have another income stream - CHECK
- ✅ Aim for lower account sizes - CHECK
I never do aggressive on 200K or 300K accounts. I always do this on 100K accounts. This year I've only done ONE 200K challenge. I have not yet done a 300K challenge because it would be way too volatile.
I'm okay with risking 2.5% or around 1-4% per day because I aim for lower account sizes.
Important Note: Most people I know who fit all this criteria do this exact same thing. And 99% of people who DON'T agree with this approach do NOT fit this criteria. Keep that in mind.
What If You've Never Made Money From Trading?
As promised, let me address this critical scenario. If you've never made money from trading, here's the adjustment:
I'm going to REMOVE the aggressive option.
If you haven't made money from trading, I don't think you should be going aggressive. I would be a bad influence if I recommended aggressive for everyone.
Recommended Approach for Beginners
You should go for conservative or normal. For most of you, I don't even recommend the conservative—I recommend the normal with a 1% cap.
Modified Normal for Beginners
Use the normal formula: (Max Drawdown ÷ 2) ÷ Trades Per Week
BUT cap it at 1% maximum.
If the formula tells you 1.3%, you go for 1%. Don't go above 1% to reduce the volatility within your challenges.
Why this matters: If you haven't made money from trading, instead of becoming liquidity for profitable traders, just take your time. Become a profitable trader first. Prove to yourself that you can:
- Get funded
- Get a payout
- Get a refund
Focus on the process, not rushing.
Quick Comparison: Which Strategy Should You Use?
100% Pass Rate
6+ Months Per Challenge
Low Failure Risk
Moderate Timeline
Higher Volatility
Faster Funding
Key Takeaways
Choose based on your situation:
- Conservative (0.25%): Want 100% pass rate? Sure. But consider if you're using an account size too large or lack confidence. Reduce account size instead.
- Normal (0.5-2%): Want a little bit more volatility but take your time with challenges and get funded in a reasonable timeframe? This is for 90% of you.
- Aggressive (1.5-4%): Want to be aggressive because you've already made money, proven profitability over and over? Go for it—but stick to lower account sizes.
The Bottom Line: All of you now have risk management you can use. Do you want to pass every single time? Go conservative. Want low risk with reasonable timeline? Go normal. Want aggressive returns and faster funding? Go aggressive—but only if you meet ALL the criteria.
Final Thoughts
These are the main recommendations. Remember:
- First, you MUST be profitable
- Choose strategy based on experience, not ego
- Beginners: Use normal capped at 1%
- Experienced: Aggressive on small accounts only
- Don't become liquidity for profitable traders—become one yourself
Focus on becoming a profitable trader first. That is the number one thing. Then use these formulas to scale through prop firms efficiently.