Risk per trade is the decision you make before any chart: how much of the account one wrong trade may cost. The often-quoted 1% rule says no single trade should lose more than 1% of the balance. The exact number is less important than choosing one and holding it.

Why the number matters so much

Losing streaks are normal. A strategy with a 45% win rate will see ten losses in a row somewhere in a long record. What that streak does to the account depends only on the risk per trade:

Risk per trade After 5 losses After 10 losses
0.5% −2.5% −4.9%
1% −4.9% −9.6%
2% −9.6% −18.3%
5% −22.6% −40.1%

At 5% a normal bad run becomes a drawdown that needs a 67% gain to recover. At 1% the same run is a bad fortnight.

How to choose

  • Prop firm accounts: work backwards from the daily loss limit and the maximum drawdown. With a 5% daily limit, 1% risk allows five full losses in a day; 2% allows two and a half.
  • Personal accounts: most discretionary traders land between 0.5% and 1%. Going higher needs a long record with a stable expectancy.
  • Fixed amount or fixed percent: a fixed percent shrinks risk after losses and grows it after wins; a fixed amount keeps R constant. Either works if it is written down.

Risk is set by the stop

A 1% risk only exists if the position is sized from the stop distance. See position size.

In SetupBook

The position-size calculator in step 1 of the trade form starts from the balance and a risk percentage. On prop accounts the form warns when the planned risk is larger than what is left of the daily limit or of the maximum drawdown, before you save the trade.