How much capital should a prop firm keep in reserve for payouts?
Quick answer
There is no fixed rule, but a reserve should cover your expected payouts for at least a few months even if sales drop, plus a buffer for a cluster of strong traders. Model it from your funded accounts, average payout and payout frequency rather than from a percentage of revenue alone.
Detailed answer
A practical way to size the reserve:
- Count funded accounts and estimate how many request a payout each cycle.
- Estimate the average payout from your rules: account size, typical profit before payout, and profit split.
- Multiply to get expected payouts per cycle.
- Stress test with a month where twice as many traders are profitable, and a month with half the sales.
- Hold enough to pay through the stress case without relying on new sales.
Revisit the reserve monthly as the funded book grows. Firms that pay new payouts from new challenge sales are exposed the moment sales slow. Clear data helps: PropExecutor's admin panel and API report each account's balance, equity and trades, so you can see the funded book's open profit at any time.
Illustrative example
With 40 funded accounts averaging $50,000, if a quarter of them request a payout each cycle at an average of 3% profit with an 80% split, expected payouts are 10 × $1,500 × 0.8 = $12,000 per cycle. A stress case at double that is $24,000, and the reserve should cover several such cycles.
PropExecutor team · Updated