Risk per trade and the 1% rule
Why professionals risk a fixed small percentage per trade, and how to turn that percentage into a lot size.
Most blown accounts are not caused by a bad strategy. They are caused by a few trades that were far too big. Fixing your risk per trade is the single change that protects every other skill you build.
Risk a percentage, not a feeling
Decide in advance how much of your account one trade may lose if the stop is hit. Many traders use 0.5% to 1%. At 1%, ten losses in a row cost about 10% of the account. At 5%, the same streak costs about 40%.
- Losing streaks of 6 to 10 trades happen to every strategy, including profitable ones.
- Small, fixed risk keeps you in the game long enough for your edge to show.
- Fixed risk also makes your results comparable from trade to trade.
From risk to lot size
Lot size = money at risk ÷ (stop distance in pips × pip value per lot). With a USD 10,000 account, 1% risk is USD 100. A 25 pip stop on EURUSD, where one standard lot is worth about USD 10 a pip, gives 100 ÷ (25 × 10) = 0.4 lots.
The stop comes first, the size comes second. Put the stop where your idea is proven wrong, then size the position to fit your risk. Never move the stop to fit a size you wanted.