Risk Management

Risk management is the set of rules that decides how much you can lose -- per trade, per day, and in total -- before your strategy ever gets a chance to work. The core formula is simple: position size = (account balance x risk percent) / distance to your stop loss. The classic guideline is risking 1-2% of the account per trade; most prop firms cap risk per trade around 2-3% and enforce it with hard limits.

This is the single most common reason traders fail funded challenges. A strategy that wins 55% of the time still produces five-loss streaks routinely; at 2% risk that streak costs 10% of the account, at 5% risk it costs a quarter of it and usually breaches the firm's maximum drawdown. Prop firms enforce daily and total loss limits automatically -- there is no warning, the account simply fails.

The guides in this cluster cover position sizing, stop placement, risk-reward ratios, and drawdown maths -- with free calculators for each -- so the numbers are decided before the trade, not during it.