How much should you risk per trade?

Every trader has losing streaks. Even a sound strategy can lose five or six trades in a row. What decides whether you survive them is not how good your entries are, but how much of your account you put at risk on each trade.

Why small losses matter so much

Losses and gains are not symmetrical. The deeper an account falls, the bigger the gain it needs just to get back to where it started:

• A 10% drawdown needs an 11.1% gain to recover
• A 20% drawdown needs a 25% gain
• A 30% drawdown needs a 42.9% gain
• A 50% drawdown needs a 100% gain

Now compare two traders who each hit a streak of five losses. Risking 10% per trade, the account falls by about 41%. Risking 1% per trade, the same streak costs about 4.9%. The first trader now needs a gain of almost 70% to break even; the second needs about 5%.

The 1–2% guideline

Many professional traders risk somewhere between 0.5% and 2% of their balance on a single trade. It is a guideline rather than a rule, but it does two useful things: no single trade can do serious damage, and the size of each loss stays predictable, which makes it much easier to stick to a plan.

If you are still learning, start at the lower end. You can always increase your risk once you have a track record you trust.

Turning risk into a position size

Risking 1% does not mean trading a fixed lot size. The right size depends on three things:

1. Your account balance
2. The percentage you are willing to risk
3. The distance from your entry to your stop loss, in pips

Together with the value of one pip, they give you the size with this formula: lots = (balance × risk %) ÷ (stop loss in pips × pip value per lot).

A worked example

Say your balance is $5,000 and you risk 1%, so $50. You want to buy EUR/USD with a stop loss 25 pips below your entry. On EUR/USD, one pip on a standard lot is worth $10.

Position size = $50 ÷ (25 × $10) = 0.20 lots.

If the same setup needed a 50-pip stop, the size would halve to 0.10 lots. A wider stop means a smaller position, and the money at risk stays at $50 either way. That is the whole point: the stop goes where the market says it should go, and the position size adjusts around it.

Common mistakes

• Moving the stop further away once a trade goes against you. It quietly turns a 1% risk into 2% or 3%.
• Trading the same lot size on every trade. With different stop distances, your real risk changes from trade to trade.
• Forgetting that related trades add up. EUR/USD and GBP/USD often move together, so two 1% trades can behave like one 2% trade.
• Adding to a losing position to "average down", which increases risk exactly when the trade is going wrong.

Work it out for your next trade

Use the calculator below with your own balance, risk and stop loss. You can also find it, with our other free tools, on the forex calculators page.

Risk note: trading forex carries a high level of risk and may not be suitable for everyone. This article is for education only and is not financial advice.