How much reserve capital should a prop firm hold?
Quick answer
Hold enough to pay expected payouts for at least a few months without new sales, plus a buffer for a stress month in which many funded traders profit at once. Size it from your funded accounts, average payout and payout frequency, and review it monthly as the funded book grows.
Detailed answer
Steps to size it:
- Funded accounts today and expected next quarter.
- Average payout per account per cycle.
- Share requesting each cycle.
- Expected monthly payouts = accounts × share × average payout × cycles per month.
- Stress case: double the share or the average payout.
- Reserve = stress monthly payouts × months of cover.
Keep the reserve in a separate account, not in the operating account used for marketing. A firm that pays today's payouts from today's sales is exposed the moment sales fall.
Worked example
Expected monthly payouts of $15,000, stress case $30,000, three months of cover: a reserve of $90,000. A firm with $40,000 would know it is under-reserved and could slow growth of the funded book, add payout caps or move more of each sale into the reserve.
Review monthly
The right reserve changes as the funded book grows.
Keep it separate.
PropExecutor team · Updated
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