Learn prop trading · lesson
The ideal bet size on a prop account
The Kelly criterion sizes positions from a measured edge. Most retail traders risk 5-10× the optimal amount, so good strategies still fail evaluations.
The formula
K = W − [(1 − W) ÷ R], where W is the win rate and R the average reward:risk. Example: 40% win rate at 1:3 → K = 0.40 − (0.60 ÷ 3) = 0.20. Kelly says this edge justifies risking 20% of capital per trade, as a theoretical maximum rather than a suggestion.
Full Kelly is too aggressive
Full Kelly maximises long-run growth, but the variance is hard to sit through and breaches a prop account's drawdown limit long before the long run arrives. Professionals run half Kelly (roughly 75% of the growth for half the swings) or quarter Kelly. On a prop account, the drawdown rules make anything above half Kelly unsafe.
Applying it to a $50K challenge
Say the max drawdown is $2,000 (4%) and the trader wins 40% at 1:3. Kelly = 20% and half Kelly = 10% of the real capital, which on a prop account is the drawdown rather than the balance. 10% of $2,000 = $200 risk per trade, and a conservative quarter Kelly = $100. That is 0.2-0.4% of the nominal account, which is why traders who pass consistently appear to risk so little.
The reality check
Risking 1% of a $50K account is $500, a quarter of the whole drawdown on one trade, or 250%+ Kelly for the profile above. Four losers in a row, which is close to certain at a 40% win rate, ends the account. An evaluation tests position sizing as much as it tests entries.
The next step is to check the theory against real program rules.
Test your sizing in the pass simulatorThis is educational content, not financial advice. The formulas assume independent trades and accurate backtests, and real trading is streakier. Traders should never risk money they cannot afford to lose.