Risk Management
Risk Management
Definition
The set of rules and strategies used to control potential losses and protect trading capital.
How It Works
In prop trading, risk management encompasses all the rules you must follow to keep your funded account: drawdown limits, daily loss limits, position sizing, leverage restrictions, and trading hour limitations. Good risk management means never risking more than 1-2% of your account on a single trade, using stop-losses, and avoiding over-leveraging.
Prop firms enforce risk management through hard rules — breach them and you lose the account. Successful prop traders treat risk management as their primary skill, not just a constraint.
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