Risk Management
How Much Should You Risk Per Trade? The 1% Rule
Every trader has losing streaks. How much you risk on each trade decides whether a streak is a small setback or the end of your account. The 1% rule is a simple way to keep losses small. Here is how to apply it, with the numbers you can check in the [Forex Risk Calculator](/forex/risk-calculator).
By the MoneyTools Editorial TeamLast updated 6 min readEditorial Policy
What the 1% rule means
The 1% rule says the most you should lose on one trade, if your stop-loss is hit, is 1% of your account. It does not mean you only use 1% of your money — it limits the loss, not the position.
Money at risk = Account balance × Risk % Pip value needed = Money at risk ÷ Stop-loss in pips Lot size = Pip value needed ÷ Pip value per standard lot
- Stop-loss in pips
- Distance from entry to your stop
- Pip value per standard lot
- About $10 for pairs quoted in USD, such as EUR/USD
New to pips? Start with What Is a Pip?.
Worked example: $5,000 account, 40-pip stop
Worked example
Applying the 1% rule on EUR/USD
- Account balance: $5,000
- Money at risk: $5,000 × 1% = $50
- Stop-loss: 40 pips
- Pip value needed: $50 ÷ 40 = $1.25 per pip
- Lot size: $1.25 ÷ $10 = 0.125 standard lots (12,500 units)
- If the stop is hit: 40 pips × $1.25 = −$50
Most brokers round to 0.01 lots, so you would trade 0.12 lots and risk about $48.
Account size vs losing streak
This table shows what is left of a $5,000 account after a run of losing trades, when each trade risks a fixed percentage of the current balance.
| Risk per trade | After 5 losses | After 10 losses | After 20 losses |
|---|---|---|---|
| 1% | $4,755 | $4,522 | $4,090 |
| 2% | $4,520 | $4,085 | $3,338 |
| 5% | $3,869 | $2,994 | $1,792 |
At 5% risk, twenty losses leave just $1,792, and you would need a gain of about 179% just to get back to $5,000. At 1%, you would need about 22%. Smaller risk keeps you in the game long enough for a good strategy to work.
Choosing your risk percentage
- 1% or less: common for beginners and for larger accounts.
- 2%: an upper limit many traders use.
- Above 2%: losing streaks quickly do serious damage.
Putting the rule to work
- Decide your risk % before you look at the chart.
- Place your stop where the trade idea is proven wrong.
- Calculate the money at risk and lot size in the Forex Risk Calculator or Forex Position Size Calculator.
- Set a take-profit with a reward you are happy with, checked in the Forex Risk/Reward Calculator.
- Track drawdowns with the Forex Drawdown Calculator.
Leverage lets you open positions much larger than your account, which makes sticking to a risk limit even more important. This guide is educational, not trading advice.
Run your own numbers
Calculate monetary risk, price distance and position size for a trade.
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