Two traders start with $10,000 and lose the same 10 trades in a row. One still has about $9,044 and the other about $5,987, and the only difference is one number each of them chose before the first trade. That number is not their . It is how much they agreed to lose when wrong, and it may be the most important number in trading.
Before we start: what do you think?
A $10,000 account loses 40% and is down to $6,000. What gain do you need to get back to $10,000?
✗ Not enough: 40% of $6,000 is only $2,400, so you would reach $8,400.
✗ Still short: 50% of $6,000 is $3,000, so you would reach $9,000.
✓ Right: $6,000 must grow by $4,000, and $4,000 is about 67% of $6,000.
✗ Too much: doubling $6,000 gives $12,000, which is $2,000 more than you need.
What "risk per trade" really means
is the amount of money you lose if the trade goes against you and your is hit. A stop-loss is an order that closes the trade automatically at a price you choose before you enter. (We explain it in detail in Stop-loss basics.)
Risk is not the same as the size of your deposit, and it is not the same as the your blocks. Margin is the money set aside to keep the trade open. Risk is what you actually lose at the stop.
The is a common rule of thumb: on any single trade, you plan to lose no more than 1% of your account balance. It is not a law, and it is not a magic number. It is a simple limit that keeps one bad trade from becoming a bad month.
Here is what 1% looks like in money:
| Account balance | 1% risk per trade |
|---|---|
| $1,000 | $10 |
| $5,000 | $50 |
| $10,000 | $100 |
Most traders who use the rule recalculate it on the current balance. If your $10,000 account drops to $9,500, your next 1% is $95, not $100. If the account grows, your risk grows with it.
Quick check
Your $10,000 account drops to $9,500. How much is your next 1% risk?
Notice what the rule does not say. It does not tell you how many to trade. The number of lots comes from the risk amount and the distance to your stop. That is the topic of How to calculate your lot size.
1% vs 5%: the same losing streak, two very different accounts
Every trader has . That is not a sign of a broken strategy. It is simply how random outcomes cluster. (See Losing streaks are normal.)
Worked example: Two $10,000 accounts, the same 10 losses
Imagine two traders with $10,000 each. They take the same 10 trades, and all 10 lose. Trader A risks 1% of the current balance each time. Trader B risks 5%.
| Trader A (1%) | Trader B (5%) | |
|---|---|---|
| Balance after 10 losses | about $9,044 | about $5,987 |
| Total loss | about 9.6% | about 40.1% |
| Gain needed to get back to $10,000 | about +10.6% | about +67% |
Trader A has had an unpleasant two weeks. Trader B has lost 40% of the account and now needs a gain of about two thirds just to get back to the start.
That last row is the key point. Losses and gains are not symmetrical. If you lose 40%, you have $6,000 left. To get back to $10,000, those $6,000 must grow by $4,000, which is about 67%. The deeper the hole, the harder the climb.
Small risk does not make you win more. It gives you more time. More time means more trades, and more trades give a real (a strategy that makes money on average over many trades) a chance to show itself.
Quick check
If small risk does not make you win more, what does it give you?
Why the rule protects you from yourself
The 1% rule is a maths rule, but it is also a behaviour rule.
When a loss is small, you can think clearly. You can look at the chart, write in your and wait for the next good setup. When a loss is large, emotions take over. Many traders then try to "win it back" with a bigger trade. That is called , and it is one of the fastest ways to empty an account.
A fixed rule also removes a decision. You do not have to ask "how much should I risk on this one?" every time. The answer is already written down. This matters most on the trades that feel exciting, because those are the trades where people tend to bet too much.
Finally, the rule makes your results comparable. If every trade risks the same share of the account, a winning month and a losing month tell you something about your method, not about one lucky or unlucky large bet.
Quick check
Name two ways a fixed 1% rule protects you from yourself.
When to lower it further
1% is a ceiling for many traders, not a target. There are good reasons to go lower, for example 0.5% or 0.25%:
- You are new. Your first months are for learning. Small losses make the lessons cheaper.
- You are in a drawdown. A is the drop from your highest balance to where you are now. Many traders cut their risk in half after a set drawdown, for example after the account is 5% below its peak.
- The market is unusually fast. Around big news, prices can jump past your stop. You may lose more than you planned. (Read When gold moves for typical high-volatility times.)
- You have several trades open at once. Three open trades at 1% each are 3% at risk. If they are on similar markets, they may all lose together.
- You are copying someone else's trades. You do not know their full record. (See What free signals don't show you.)
Going lower never hurts your survival. It only slows down growth, and slow growth is still growth.
Quick check
You have three trades open at 1% each, all on similar markets. How much is really at risk?
Key takeaways
- Risk per trade is what you lose at the stop-loss, not your deposit or margin.
- The 1% rule is a common rule of thumb that limits each loss to 1% of the current balance.
- At 1%, ten losses in a row cost about 10%. At 5%, they cost about 40%, and you need about +67% to recover.
- A fixed rule protects you from emotional, oversized trades.
- Use less than 1% when you are new, in a drawdown, or trading fast markets.
Try this
Write down your account balance (or the balance you plan to start with). Calculate 1% and 0.5% of it. Then write one sentence on paper: "My maximum loss on any single trade is $___." Keep that sheet where you can see it when you trade.