The 1% rule: how much to risk per trade
- Risking 1% means losing at most 1% of your capital if the stop is hit, not putting 1% of your capital into the trade.
- At 1 to 2% per trade, a run of ten losses is survivable; at 10%, it destroys the account.
- A fixed percentage adjusts by itself: you risk less when you lose and more when you win.
If you could remember only one risk management rule, it would be this one: never lose more than 1 to 2% of your capital on a single trade. It feels far too cautious when you start out. In practice, it is what keeps you in the game long enough to become good.
What “risking 1%” really means
Risking 1% does not mean putting 1% of your account into the trade. It means that if your stop loss is hit, you lose 1% of your capital. With a €5,000 account, the planned maximum loss on the trade is €50, whatever position size it takes to get there.
Position size therefore depends on the distance to your stop. A tight stop allows a bigger position, a wide stop forces a smaller one. Either way, the loss in euros stays the same: €50. That is what makes your trades comparable with each other.
Why so little? Losing streaks
No strategy wins every time. Even a method that wins one trade in two will go through runs of five, eight or ten losses in a row if you trade long enough. That is not a sign the method has stopped working. It is simply short-term randomness.
So the question is not whether a losing streak will happen, but how much it will cost you. The chart shows how an account evolves through a losing streak depending on the percentage risked on each trade.
| Risk per trade | Capital after 10 losses (starting at $10,000) | Drop |
|---|---|---|
| 1% | $9,043.82 | −9.6% |
| 2% | $8,170.73 | −18.3% |
| 5% | $5,987.37 | −40.1% |
| 10% | $3,486.78 | −65.1% |
Why so little? The maths of recovery
The second argument is mathematical, and it is ruthless. When your account drops, you need a bigger percentage gain to get back to where you started. Losing 10% takes an 11.1% gain to break even. Losing 50% means you have to double what is left.
With 1% risk, a bad run costs you around 10% and can be recovered in a few good weeks. With 10% risk, the same run leaves you needing to almost triple your remaining capital. That is often the moment traders raise their risk even further to win it back, and the account disappears.
A complete worked example
You have €5,000 in your account and decide to risk 1% per trade. You spot a buy on EUR/USD with a stop 20 pips below your entry. On a euro account, the pip value of one standard lot of EUR/USD is about €9.22 when the euro is worth 1.0850 dollars ($10 ÷ 1.0850).
- Capital
- €5,000
- Chosen risk
- 1%
- Amount at risk
- €50
- Stop
- 20 pips
- Pip value for 1 lot (EUR/USD at 1.0850)
- ≈ €9.22
- Loss for 1 lot if the stop is hit
- 20 × €9.22 ≈ €184.33
- Position size
- 50 ÷ 184.33 ≈ 0.27 lots
0.27 lots gives a loss of about €49.77 at the stop, just under the €50 limit. Always round down.
If the trade loses, you lose about €50 and your capital drops to €4,950. On the next trade, 1% is €49.50. If you win and your account climbs to €5,300, 1% is €53. A fixed percentage automatically shrinks your stake in bad periods and grows it in good ones.
1%, 2% or less: how to choose
- 0.5% to 1%: the right choice when starting out, with a small sample of trades or a strategy not yet tested.
- 1% to 2%: the usual range for a trader who knows their strategy and has measured their losing streaks.
- More than 2%: every losing streak becomes hard to absorb, financially and psychologically.
- Prop firm challenge: a strict daily loss limit may push you below 1%.
Some people find 1% ridiculously small on a €1,000 account: €10 of risk per trade is not exciting. That is exactly the point. A small account is first of all for learning and proving that a method works. If you double or triple your risk so the wins feel “worth it”, you also double or triple how fast you can lose everything. Account size grows with deposits and results, not with risk per trade.
This rule has one last, quieter benefit: it calms you down. When you know a losing trade only costs you 1%, you no longer need to watch every tick or move your stop out of fear. You can let your plan do its job and judge your method over a series of trades rather than a single one.
Check your understanding
0 / 3Educational content, not investment advice. Leveraged trading carries a high risk of losing money rapidly: most retail investor accounts lose money on these products.