There is one number that separates traders who last from traders who do not, and it is not a win rate. It is how much of the account a single trade is allowed to cost. Deciding how much to risk per trade takes about five minutes, once, and then quietly governs everything else you do.
01 The rule, and where it comes from
The convention you will see everywhere is the 1 percent rule: no single trade may lose more than 1 percent of your account balance. Some experienced traders run 2 percent. Very few good ones run more.
The number is not superstition. It comes from a question worth asking before you place anything: how many losses in a row can I take and still be in business? Because you will get a losing streak. Not might. Will.
Read the bottom row again. At 10 percent risk, seven consecutive losses halves your account. Any strategy you have ever used has produced seven losses in a row at some point. At 1 percent, that same streak costs you about 7 percent and you would struggle to remember it a month later.
02 What 1 percent actually means in money
The percentage is doing something clever: it shrinks your risk automatically when you are losing and grows it when you are winning, without you having to think about it. On a 2,000 US dollar account, 1 percent is 20 US dollars. On a 20,000 US dollar account it is 200 US dollars. The discomfort stays roughly constant even as the numbers change.
This is also where beginners meet an awkward truth. On a small account, 1 percent is a small amount of money, and a sensible stop distance may mean trading a very small position, sometimes a micro lot. That feels like it is not worth doing. It is worth doing. You are buying practice at a survivable price.
03 When to risk less than 1 percent
The 1 percent figure is a ceiling for a normal trade in normal conditions, not a target you have to hit every time. Risk less when you are new and still proving a method, when you are trading a setup you have not taken before, when volatility is unusually high, or when a major economic release is due while your trade is open.
And risk less, or nothing at all, when you notice you want to trade rather than that you have found a trade. That distinction is the whole of Course 5, and it costs more accounts than bad analysis does.
Your account is 3,000 US dollars and you have settled on 1 percent, so your maximum loss on any trade is 30 US dollars. You find a setup on GBP/USD where the sensible stop sits 25 pips away. On a mini lot, which is 10,000 units, a pip is worth roughly one US dollar, so a mini lot would put about 25 US dollars at risk. That fits inside your 30 US dollar limit, so one mini lot is your size. Notice the order: the account and the chart decided the position, you did not.
Increasing risk after a loss to win it back faster. This feels like decisiveness and is actually the fastest route to a blown account, because it raises your exposure exactly when your judgement is worst. If your risk changes at all after a loss, it should go down.
- Your account is 8,000 US dollars and you risk 1 percent. What is your maximum loss per trade?
- Roughly how many losses in a row would halve an account risking 5 percent per trade?
- You have just taken three losses. Should your risk on the next trade go up, down, or stay the same?
Show answers
1) 80 US dollars. 2) About 14. 3) Down or unchanged. Never up.
- Risk between 0.5 and 2 percent of your account per trade. Most professionals sit at the lower end.
- Choose the number by asking how many consecutive losses you could absorb, because streaks are certain.
- A percentage rule shrinks your risk automatically in a drawdown and grows it as the account grows.
- Risk less when you are new, when volatility is high, or when news is due. Never more after a loss.
It means no single trade is allowed to lose more than 1 percent of your account. On a 5,000 US dollar account that is 50 US dollars, whatever the pair, the stop distance or how confident you feel.
Two percent is defensible for a trader with a tested method and the discipline to hold the line. It is roughly twice as punishing in a streak, though: ten losses costs about 18 percent rather than about 10 percent. If you are still learning, start lower.
More than you expect. Even a strategy that wins 50 percent of the time will produce a run of seven or eight losses often enough to matter. Size so that such a run is survivable rather than assuming it will not arrive.
Further reading: ESMA leverage limits for retail CFD traders, the European regulator rules that cap major currency pairs at 30:1 and set out negative balance protection.
Work out your exact size with the free Position Size Calculator