Key takeaways
- Pick a fixed risk per trade as a percentage of your account, commonly 0.5% to 1%.
- Position size = money at risk divided by the stop distance in money per point or pip.
- Measure results in R (multiples of what you risked) so trades of different sizes are comparable.
- Ten losses in a row at 1% risk is roughly a 10% drawdown. At 5% risk it is about 40%.
Step 1: Choose your risk per trade
Decide the most you'll lose if a trade hits its stop, as a percentage of your account. Many traders use 0.5% to 1%. It feels small. That's the point: it keeps any single trade, or any normal losing run, from doing real damage.
Step 2: Work out your position size
Position size = money at risk ÷ (stop distance × value per point)
Example: spread bet
Account £10,000, risk 1% = £100. Your stop is 20 points away. £100 ÷ 20 points = £5 per point.
Example: Nasdaq futures
The Micro E-mini Nasdaq-100 (MNQ) is worth $2 per index point; the full-size E-mini (NQ) is $20 per point. Account $50,000, risk 0.5% = $250. Stop 25 points away. One MNQ contract risks 25 × $2 = $50, so $250 ÷ $50 = 5 MNQ contracts. The same trade on NQ would risk $500 per contract, more than your limit, so you'd use the micros.
The rule is the same in every market: the stop goes where the trade idea is wrong, and the size comes from the stop. Never the other way round.
Step 3: Think in R
1R is the amount you risked. A trade that makes twice your risk is +2R; a full loss is −1R. Measuring in R makes your results comparable across different account sizes and position sizes, and it's what you need to calculate expectancy.
Step 4: Respect losing streaks
Every strategy has them. Here's what ten losses in a row does to an account at different risk levels:
| Risk per trade | Drawdown after 10 straight losses |
|---|---|
| 0.5% | about 4.9% |
| 1% | about 9.6% |
| 2% | about 18.3% |
| 5% | about 40.1% |
Those figures assume each loss is a percentage of the remaining balance. A 40% drawdown needs a 67% gain just to get back to where you started, which is why large risk per trade ends so many accounts.
Step 5: Set daily limits
- Daily loss limit: for example 2% of the account. Hit it and you stop for the day.
- Maximum trades per day: stops one bad day turning into revenge trading.
- Correlation: two trades on closely related markets, such as two US indices, can be one bigger trade in disguise.
Stop losses and leverage
A stop loss caps the loss on a trade under normal conditions, but in fast markets or over a weekend gap price can jump past it, so the fill can be worse than the stop. Leverage doesn't change your risk if you size correctly; it changes how much damage a sizing mistake can do.
Managing capital on live and funded accounts is a full module in the GRIT curriculum. If you trade funded accounts, read why traders fail prop firm challenges next.
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Quick answers
How much should I risk per trade?
Many traders risk between 0.5% and 1% of their account per trade. The right figure is one where a normal losing run of ten or more trades wouldn't stop you trading or change how you behave.
How do I calculate position size?
Divide the money you're prepared to lose by the stop distance multiplied by the value per point. For example, £100 at risk with a 20-point stop on a spread bet is £5 per point.
What is a good risk to reward ratio?
There's no single right ratio, because it has to be read with your win rate. A strategy that wins 40% of the time needs average winners well above 1.5 times its average losers to be profitable; one that wins 60% can work with smaller winners. Look at expectancy, not the ratio alone.
Education only. This guide is general education, not financial advice or a recommendation to trade. Trading carries a high risk of losing money and most retail traders lose money. Examples are illustrations, not trade ideas.