The 10% rule in crypto prop trading means your account cannot lose more than 10% from its starting balance — ever. At FundedXYZ, if your $100,000 funded account drops to $90,000 or below, the account is terminated. This single rule governs everything about how you should size positions, set stop-losses, and manage your overall portfolio risk. Master it, and you'll never blow a funded account. Ignore it, and no amount of trading skill will save you.
What Is the 10% Maximum Drawdown Rule?
The maximum drawdown (max DD) is the most you can lose before your funded account is terminated. At FundedXYZ and most crypto prop firms, this is set at 10% of the starting account balance.
| Account Size | 10% Max Drawdown | Termination Level |
|---|---|---|
| $5,000 | $500 | $4,500 |
| $10,000 | $1,000 | $9,000 |
| $25,000 | $2,500 | $22,500 |
| $50,000 | $5,000 | $45,000 |
| $100,000 | $10,000 | $90,000 |
The drawdown is your risk budget. Every trade you take spends a portion of this budget. Your job is to spend it wisely — taking calculated risks that generate profits while never depleting your budget entirely.
How Max Drawdown Is Calculated
There are two common methods for calculating max drawdown. Understanding which one your firm uses is critical:
Static Drawdown (Balance-Based)
The drawdown is measured from the starting balance. If you start with $100,000, the floor is always $90,000 regardless of how high your account grows. This is the simpler and more trader-friendly method.
Trailing Drawdown (Equity-Based)
The drawdown "trails" your highest equity point. If your account grows to $108,000, the new floor becomes $97,200 (10% below the new high). This method is more punitive because your floor keeps rising as you make money.
FundedXYZ uses a 10% max loss from the initial balance, which gives traders clear, predictable risk parameters.
Position Sizing: The Foundation of Risk Management
Position sizing determines how much capital you allocate to each trade. Get this right, and the rest of risk management falls into place.
The 1% Risk Rule
Risk no more than 1% of your account balance on any single trade. This is the gold standard for prop trading risk management.
📐 Position Size Formula
Position Size = (Account Balance × Risk %) ÷ (Entry Price − Stop Loss Price)
Example: $50,000 account, 1% risk ($500), BTC long at $65,000, stop at $63,700 (2% stop):
Position Size = $500 ÷ ($65,000 − $63,700) = $500 ÷ $1,300 = 0.385 BTC
Position value: 0.385 × $65,000 = $25,000 (50% of account, but only 1% at risk)
Why 1% and Not 2% or 3%?
| Risk Per Trade | Consecutive Losses to 10% DD | Probability of 10 Losing Streak* |
|---|---|---|
| 0.5% | 20 trades | 0.001% |
| 1% | 10 trades | 0.1% |
| 2% | 5 trades | 3.1% |
| 3% | ~3.3 trades | 12.5% |
| 5% | 2 trades | 25% |
*Based on 50% win rate
At 1% risk, you need 10 consecutive losses to breach the drawdown limit. At a 50% win rate, the probability of 10 straight losses is 0.1% — essentially impossible in normal conditions. At 3% risk, you need only 3–4 consecutive losses, which happens regularly.
Stop-Loss Strategies for Funded Accounts
Every trade on a funded account must have a stop-loss. No exceptions. Here are the three most effective stop-loss approaches:
1. Technical Stop-Loss
Place your stop below/above a meaningful technical level — a previous swing low, support/resistance, or moving average. This is the most reliable method because the stop is placed where the trade thesis is invalidated.
2. ATR-Based Stop-Loss
Use the Average True Range (ATR) indicator to set stops based on current volatility. A common approach: 1.5× ATR below entry for longs. This automatically adjusts stop distance when volatility changes.
3. Percentage-Based Stop-Loss
Set a fixed percentage stop (e.g., 2% below entry). Simple but less adaptive to market conditions. Best used as a maximum stop distance combined with one of the above methods.
⚠️ Never Do These
Never trade without a stop-loss. "Mental stops" don't work — emotions override logic when your P&L is red.
Never widen your stop after entering. If the trade hits your stop, accept the loss. Moving stops is how 1% losses become 5% losses.
Managing Correlation Risk
One of the biggest hidden risks in crypto trading: correlation. When BTC drops, ETH drops, SOL drops, and most altcoins drop. If you're long BTC, ETH, and SOL simultaneously, you effectively have one giant position — not three separate trades.
Rules for managing correlation:
- Total risk across all correlated positions ≤ 3% — If BTC, ETH, and SOL are all in the same direction, treat them as one risk bucket
- Diversify direction — If you're long BTC, consider only shorting altcoins (if at all) to reduce correlation risk
- Count your total exposure — Before opening a new position, calculate your total portfolio risk, not just the individual trade risk
Risk Scenarios: How Losses Compound
Let's model three traders with different risk approaches on a $50,000 account (10% max DD = $5,000 budget):
Trader A: 1% Risk (Conservative)
Loses 4 trades in a row: -$500 × 4 = -$2,000 (4% drawdown, 60% of budget used). Still has plenty of room to recover. Takes 3 winning trades at 2:1 R:R: +$1,000 × 3 = +$3,000. Net: +$1,000. Account healthy.
Trader B: 3% Risk (Aggressive)
Loses 2 trades in a row: -$1,500 × 2 = -$3,000 (6% drawdown, 60% of budget used). Panic sets in. Takes one more losing trade: -$1,500. Now at -$4,500 (9% drawdown). One more loss terminates the account. Fear prevents any further trades.
Trader C: 5% Risk (Reckless)
First trade: loss. -$2,500 (5% drawdown, 50% of budget gone in one trade). Second trade: loss. -$2,500. Account terminated at -$5,000 (10%). Two trades. Done.
Same market conditions. Same win rate. Dramatically different outcomes — all because of position sizing.
Recovery Math: Why Prevention Beats Recovery
Drawdowns are asymmetric — it takes a larger gain to recover from a loss:
| Drawdown | Gain Needed to Recover |
|---|---|
| 5% | 5.3% |
| 10% | 11.1% |
| 20% | 25% |
| 30% | 42.9% |
| 50% | 100% |
At 5% drawdown, recovery is straightforward. At 8–9% (approaching the 10% limit), you need 8–10% returns just to get back to even — while only being allowed to lose 1–2% more. This is why staying small and preventing deep drawdowns is more important than maximizing profits.
The 7 Rules of Prop Trading Risk Management
- Risk 1% per trade, maximum — Non-negotiable. This is the foundation.
- Always use stop-losses — Set them before you enter. Never move them against you.
- Limit correlated exposure to 3% — Multiple crypto longs = one big trade.
- Stop trading after 2 consecutive losses — Walk away. Come back tomorrow with a clear head.
- Reduce size after 5% drawdown — Drop to 0.5% risk per trade until you recover to 3% drawdown.
- No trading during major news events — CPI, FOMC, unexpected events create uncontrollable risk.
- Review risk metrics weekly — Track your actual risk per trade, max drawdown, and correlation exposure.
Trade with Proper Risk Management
FundedXYZ gives you the time to trade properly — no rush, no daily drawdown traps. Start from $79.
Start Your Challenge →Frequently Asked Questions
The 10% rule means your funded account cannot lose more than 10% from its starting balance. For a $100,000 account, if equity drops to $90,000 or below, the account is terminated. This is the maximum drawdown limit used by most prop firms including FundedXYZ.
Risk 1–2% of your account balance per trade. With a 10% max drawdown, 1% risk gives you 10 consecutive losses before breach. Most successful funded traders use 1% risk per trade.
Position Size = (Account Balance × Risk %) ÷ (Entry Price − Stop Loss Price). Example: $50,000 account, 1% risk ($500), BTC entry at $65,000, stop at $64,000: Position = $500 ÷ $1,000 = 0.5 BTC.