Strategy and performance
Fixed fractional
Risking a constant percentage of equity on every trade, so position size falls after losses and rises after gains. It is the standard position-sizing model and the one most prop rules assume.
Also called: Percentage risk · Fixed percentage sizing
GFN’s figure
Against GFN's limits, 0.5% per trade on a $100,000 account is $500 - one sixth of the Instant daily allowance and one tenth of the 1 Step and 2 Step allowance.
- 0.5% risk
- $500 on $100,000
- 1% risk
- $1,000 on $100,000
- 2% risk
- $2,000 on $100,000
In detail
Fixed fractional,explained
The automatic de-risking is the point: a losing run shrinks the positions taken during it, which is exactly the behaviour a fixed drawdown floor rewards.
The choice of percentage matters more than the entries. The same strategy at 0.5% and at 2% is two different products on an account with a hard floor.
Related
Terms thatcome with it
Most rules only make sense next to the ones they interact with. These are the entries this one depends on.
Position size
How many lots a trade is placed in. It is calculated from the dollar amount being risked and the stop distance, not chosen first - which is the reverse of how most traders approach it.
Kelly criterion
A formula giving the position size that maximises long-run growth for a known edge. Its output is far too large for real trading, because the inputs are estimates and the drawdowns it accepts are extreme.
Risk of ruin
The probability that a sequence of trades takes an account to its breach level before it reaches its target, given a win rate, a reward-to-risk ratio and a risk per trade. It is driven mostly by position size.
Maximum consecutive losses
The longest unbroken run of losing trades in a sample. Multiplied by risk per trade it gives the drawdown a strategy has historically produced, which is the figure a fixed floor has to absorb.
R-multiple
A trade's result expressed in units of its initial risk. Risking $200 and making $600 is +3R; hitting the stop is -1R. It makes results comparable across account sizes and position sizes.
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