You’ve made it through the challenge and received money from a prop firm or perhaps you’re still slogging through the evaluation stage and trying not to lose all of your money. In any case, you’ve most likely rapidly realised something:
The goal of trading is to avoid losing money as much as to make it.
If you have a few lucky deals, it doesn’t matter to prop firms. Discipline and consistency are important to them. They prefer long-term traders over gamblers who lose everything after a few wins. If you’re using MT5 as your trading platform then you’re fortunate. It has many tools that with the right application can help you control risk. Let’s see the best risk management strategies for MT5 prop trading so you can stay in the game and actually make it to the profit split.
The Golden Rule: Protect Your Capital First
Your number one job as a trader is not to make money. It’s to protect the money you already have.
That might sound weird, but think about it. If you lose half your account then you need to double your money just to get back to where you started. That’s a disaster.
So before going into the details of MT5 risk management, let’s get one thing straight: the goal is to survive first then thrive.
With that mindset in place, let’s talk strategy.
The 1% Rule: Stop Risking Too Much
Most prop firms have a strict daily drawdown limit—usually around 5% per day. If you hit that then your account is gone. No second chances.
So, how do you avoid blowing up? Stick to the 1% rule.
Never risk more than 1% of your account per trade.
If you have a $100,000 funded account then your max risk per trade should be $1,000.
That means adjusting your position size, stop loss, and leverage accordingly.
MT5 trading platform makes this easy with its built-in risk calculator. Before entering a trade, always check:
- Lot size – How much are you actually risking?
- Stop-loss distance – Does it fit within 1% risk?
- Account leverage – Are you overexposing yourself?
Traders who ignore this rule usually don’t last long. Don’t be one of them.
Stop-Loss Placement: How to Avoid Getting Stopped Out Too Early
A lot of traders get stopped out way too early because they place their stop loss in the most obvious place. And guess what? Market makers prefer hunting those stops.
Here’s how to place a better stop loss in MT5:
- Use ATR (Average True Range): The ATR indicator helps you measure volatility and place a stop-loss that isn’t too tight.
- Avoid round numbers: If the price is at 1.2500, don’t place your stop at 1.2499—that’s where everyone else puts theirs.
- Go below/above structure: Place your stop below a key support level in an uptrend or above a key resistance level in a downtrend.
Want a shortcut? Set your stop loss at 1.5x the ATR. That way, you avoid getting stopped out in normal market fluctuations.
Position Sizing: The Secret to Staying in the Game
You could have the best strategy in the world but if you’re using the wrong lot size, you’re toast.
Here’s how to size your trades correctly in MT5:
Use the built-in Position Size Calculator – Before placing a trade, check your risk-to-reward ratio and adjust your lot size accordingly.
Leverage wisely – Just because your prop firm offers 1:100 leverage doesn’t mean you should use all of it. More leverage = more risk.
Keep risk consistent – Don’t risk 0.5% on one trade and 3% on another. Be consistent with your risk per trade.
Pro tip: If you’re struggling with position sizing, use MT5 scripts to automatically calculate your trade size based on your stop loss.
The Break-Even Trick: Locking in Profits Without Choking the Trade
One of the best risk management techniques is moving your stop loss to break even but most traders do it wrong.
Here’s how to do it properly:
Wait for the price to move at least 1.5x your risk before moving to breakeven.
Don’t choke the trade – If you move your stop too soon, you’ll get stopped out before the real move happens.
Use partial take-profits – Instead of closing the whole trade, secure some profit and let the rest run.
MT5 lets you easily modify stop-loss levels from the chart so use that to your advantage.
Risk-to-Reward Ratio: Are You Even Trading Profitably?
If you’re risking $100 to make $100, you need to be right more than 50% of the time just to break even.
That’s not a winning game.
Prop firms prefer traders who maintain at least a 1:2 risk-to-reward ratio (risking $1 to make $2). That way, even if you only win 40% of your trades, you’re still profitable.
Here’s how to use MT5 to enforce a solid risk-to-reward ratio:
- Set a default take-profit level that’s at least 2x your stop loss.
- Use Fibonacci retracements to identify logical profit targets.
- Manually adjust your orders based on market structure.
If you’re taking bad trades just because they feel good, check your risk-to-reward first. If it’s not at least 1:2, don’t take it.