Risk per trade and position size: the formula that decides how long you last

In the beginner course you met the 1% rule. Here we put it to work: we turn it into a routine you can repeat on every trade without thinking, even when you're tense. It starts from one simple idea that a lot of people mix up: risk is not the lot size you open, it's the loss you take if your stop is hit. Two trades with the same lot size can carry very different risk, and two trades with different lot sizes can carry exactly the same.

Risk in money

You decide the risk per trade before you enter, as a percentage of your account, and turn it into money:

Money at risk = account balance × risk percentage

The amounts are in your account currency. With 10,000 and a 1% rule, you're prepared to lose 100 on this trade, and not a cent more if things go as planned.

From risk to lots

Lot size is the last thing you work out, not the first:

Lots = money at risk ÷ (stop in pips × value of one pip per lot)

Notice the logic: the chart decides the stop (the lesson on structure tells you where the idea is wrong), you decide the risk, and the lot size follows. If keeping the stop where it belongs would need a lot size that's too big, you don't tighten the stop: you cut the size or skip the trade.

Why 1%?

There's no magic number, but there is a way to think about it: how many losses in a row does it take to really hurt your account? Here's how many consecutive losses it takes to drop below 80% of your starting balance, a 20% loss:

At 5%, five stops in a row is enough, and that's far from rare (the lesson on losing streaks will show you). At 1% you have room to get things wrong, learn from them and stay in the game. For a beginner, 0.5% often makes even more sense: the cost of a mistake is tiny while you build your method.

A percentage of today's balance

Recalculate the money at risk on today's balance, not the starting one. After a losing run your balance is lower, so your money at risk is lower too: the next losses are smaller and the slide slows down. After a winning run it works the other way round. It's a handy built-in feature: your size adjusts itself to how you're doing.

Spread is part of the risk

The stop you see on the chart isn't the true cost of the trade. If you buy, you enter at the ask but your stop is triggered by the bid price: you pay the spread either way. With tight stops it matters: a 10-pip stop with a 1.5-pip spread is really 11.5 pips of effective risk. To be precise, include the spread (and a little room for slippage) when you set the stop, before you work out the lots.

Minimum lot and small accounts

Brokers let you trade in steps (often 0.01). If your calculation says 0.0167 lots, you must round down to 0.01, never up: rounding up means risking more than you decided. The trouble starts with very small accounts and wide stops. With $500 and 1% ($5) and a 30-pip stop you'd need 0.017 lots; the 0.01 minimum risks $3, which is fine. But with an 80-pip stop the minimum 0.01 lots would risk $8, or 1.6%. Then you either skip the trade or knowingly accept the bigger risk and write it in your journal. Don't pretend it's still 1%.

The most common mistakes

• Sizing by feel, or always using the same lot size whatever the stop.
• Tightening the stop to make the numbers fit, into a spot the price will almost certainly touch.
• Raising your risk after a loss to win it back, or after a winning streak because you're "on fire".
• Forgetting the account currency: if your account is in euros, the pip value depends on the exchange rate. Use a calculator and check your broker's contract specifications.

In short

• Decide the risk as a percentage, turn it into money, and only then into lots.
• Lots = money at risk ÷ (stop in pips × pip value).
• The chart dictates the stop; if it's wide, reduce the size.
• Recalculate on your current balance, include spread, and always round down.

Practice

1. Pick a balance (demo is fine) and a risk percentage, and write both numbers at the top of your journal.
2. With the position size calculator, work out the size for three EUR/USD trades with 15, 30 and 60-pip stops. The money at risk must stay identical.
3. Redo the calculation including a 1.2-pip spread. How much does the size change?
4. Check your platform for the minimum lot and the step on your account. What's the widest stop at which you can still respect your risk?