The Kelly criterion, adapted for prop firm challenges. Your real bankroll is not the account size, it is the drawdown you are allowed to lose, so that is what your risk is sized against.
Standard Kelly sizes your bet against your bankroll, the money you can afford to lose. In a normal account that is close to the whole balance. In a prop firm challenge it is not: the moment you lose the maximum drawdown, the account is gone, even though most of the "balance" was never really yours to risk.
So the correct bankroll for Kelly is the drawdown buffer. The maths becomes:
Kelly fraction = Win rate − (1 − Win rate) ÷ Reward-to-risk
Risk per trade (% of account) = Kelly fraction × Max drawdown %
If the Kelly fraction is zero or negative, your edge does not justify any risk.
Almost nobody trades full Kelly. It technically maximises long-run growth, but it does so with punishing swings, expected drawdowns of fifty percent or more, and it assumes you know your win rate and payoff exactly, which no trader really does. Because the growth curve is flat near its peak, half Kelly keeps around three quarters of the growth rate while roughly halving the volatility and the drawdowns. That trade-off is why half Kelly, and often quarter Kelly, is the accepted standard among professional traders and money managers, and it is the risk level this calculator recommends by default. Against a tight prop firm drawdown, sizing down is not caution, it is survival.
Want the full reasoning and worked examples? Read the Kelly criterion for prop firm traders.
Kelly maximises long-run growth, not your odds of clearing a target before a drawdown on a deadline. Plug your win rate, reward-to-risk and this risk level into the free simulator to see the pass rate it actually produces.
Open the Monte Carlo simulator →This tool is for educational purposes only and does not constitute financial, investment, or trading advice. Trading carries a significant risk of loss, and past performance is no guarantee of future results. Do your own research and consider consulting a licensed professional before making any financial decision.