How Much Should You Risk Per Trade?
There is no correct number, but there is correct arithmetic
You will see 1% quoted most often, with 0.5% and 2% on either side. No source can tell you which one is right for you, because the answer depends on how a losing streak affects your decision-making and on how long you intend to keep trading. Anyone who gives you a single number without asking about either is selling something.
What can be done exactly is the arithmetic. Once you pick a percentage, the consequences follow with no uncertainty at all. The tables below are that arithmetic, so you can choose the number with your eyes open rather than picking a round figure because it appeared in a forum post.
The percentage does one job: it converts your account balance into a cash risk budget. That budget then combines with your stop distance to produce a position size, which is what the position size calculator computes.
What a losing streak costs
Losing runs are normal at any win rate. The question the percentage answers is how much equity is left when one is over. Each line is simple compounding: remaining equity after n consecutive losses is (1 - risk%)^n.
| Consecutive losses | Risking 0.5% | Risking 1% | Risking 2% |
|---|---|---|---|
| 5 | 97.52% | 95.10% | 90.39% |
| 10 | 95.11% | 90.44% | 81.71% |
| 20 | 90.46% | 81.79% | 66.76% |
Twenty losses in a row at 2% leaves you with about two thirds of the account. At 0.5% the same run leaves you with about nine tenths. Neither is catastrophic in isolation, but the difference is what determines whether you are still trading with a clear head afterwards, and whether the next trade is sized by the method or by the urge to make it back.
Why drawdowns are harder to climb out of than to fall into
Losses and gains are not symmetrical. To return to break-even after a drawdown, you need a gain of 1/(1 - loss) - 1, which grows faster than the loss itself.
| Drawdown | Gain needed to recover |
|---|---|
| 10% | 11.1% |
| 20% | 25.0% |
| 30% | 42.9% |
| 50% | 100.0% |
| 70% | 233.3% |
A 20% drawdown needs a 25% gain, which is merely hard. A 50% drawdown needs you to double what is left. That asymmetry is the strongest arithmetic argument for keeping the per-trade percentage small: the cost of a deep drawdown is not proportional to its depth.
Percentage risk versus fixed lot size
A fixed lot size and a fixed percentage start out identical and then diverge the moment the balance moves. With a fixed 0.50 lots, your risk as a share of the account grows as the account shrinks, because the same position is now being carried by less equity. With a fixed percentage, the size falls automatically with the balance: a 1% risk on 10,000 is 100, and on 8,000 it is 80. That is not a clever trick, it is just the budget being recalculated from the current balance every time.
The same applies in reverse. After a winning run, a fixed percentage quietly increases your size, which is usually what people want without having to decide it.
Two constraints that override the percentage
The unit step
On a small account, a small percentage may not be placeable. Risk 0.25% on a 500 USD account and the budget is 1.25 USD. With a 20-pip effective stop on EUR/USD, that budget supports 1.25 / 0.0021 = 595 units, which is below the 1,000-unit step most brokers use. Rounded down, the correct size is zero. The honest response is a wider stop, a larger percentage, or no trade; rounding up to one micro lot would put your actual risk far above 0.25%.
Correlated open positions
The percentage applies to a single trade. If five positions are open at once and they all express the same view, the worst case is not 1%, it is closer to the sum. Five correlated positions at 1% each behave like one position at roughly 5%. Either cap total open risk across the book, or treat the group as a single trade and size it once.
How to choose your number
- Pick the losing streak you can sit through. Look at the first table and choose the column you could watch happen without changing your method. Not the one that looks best on paper.
- Check it against your smallest tradable size. Work out whether the percentage survives rounding on your account balance and your typical stop distance.
- Decide what happens across open positions. Per trade, or per book. Write it down before the trades are open.
- Hold it constant. A percentage that changes with conviction is not risk management. If a setup deserves more size, take it at the standard risk and let the outcome compound.
Whatever you settle on, the number only becomes real when it is converted into units with the spread and commission inside the budget. That conversion is the whole job of a position size calculator.