The 1–2% rule
Many traders limit the loss on any single trade to 1–2% of their account. The point is survival: even a sound approach has losing streaks, and small losses keep you in the game long enough for the edge to show.
| Losing trades in a row | Risking 1% each | Risking 5% each | Risking 10% each |
|---|---|---|---|
| 5 | 95.1% | 77.4% | 59.0% |
| 10 | 90.4% | 59.9% | 34.9% |
| 20 | 81.8% | 35.8% | 12.2% |
Deep drawdowns are also hard to recover from: after a 50% loss you need a 100% gain just to get back to where you started.
How to calculate position size
Position size (lots) = amount at risk ÷ (stop distance in pips × pip value per lot).
- 01
Decide the risk
Account of $5,000, risking 1% = $50.
- 02
Find the stop
You buy EUR/USD at 1.1000 with a stop at 1.0975 — 25 pips.
- 03
Pip value
On EUR/USD one pip on one lot is $10.
- 04
Size the trade
$50 ÷ (25 × $10) = 0.20 lot. If the stop is hit, the loss is about $50, before costs and any slippage.
Notice the order: stop first, size second. A wider stop means a smaller position; a tighter stop allows a larger one. The money at risk stays the same.
Leverage is not the same as risk — but it enables it
Leverage only decides how much margin a position needs. With up to 1:100 available on forex, a $5,000 account could open positions worth $500,000 — where a 1% move against you would wipe the account out. Using the sizing formula keeps your real exposure far below what the leverage allows. Treat available leverage as a ceiling, not a target.
Watch correlation and total exposure
- Buying EUR/USD, GBP/USD and AUD/USD at the same time is largely one bet against the US dollar — three 1% risks can behave like one 3% risk.
- Gold, indices and crypto can all react to the same risk-on or risk-off news.
- Set a limit for total open risk across all positions, for example 5% of the account.
Rules that protect your account
- Set a stop loss on every trade, at the price that proves the idea wrong.
- Set a daily or weekly loss limit and stop trading when you reach it.
- Do not add to losing positions to 'average down'.
- Keep a trading journal: entry reason, risk, result and what you would change.
- Account for costs — spreads, commission and swaps — in your expected result.
- Be careful with positions held over news and weekends, when prices can gap past stops.
Practise your sizing and rules on a demo account first. When you go live, start with small positions so mistakes are cheap.
Frequently asked questions
How much should I risk per trade?
Many traders risk 1–2% of their account per trade, so that a losing streak does not cause irreparable damage.
How do I calculate lot size in forex?
Divide the amount you are willing to lose by the stop distance in pips multiplied by the pip value per lot. Risking $50 with a 25-pip stop on EUR/USD gives 0.20 lot.
Does lower leverage reduce risk?
Lower leverage limits how big a position you can open, which can prevent over-trading. The actual risk on each trade is set by position size and stop distance.
What is drawdown?
Drawdown is the fall in account value from a peak to a later low. Keeping risk per trade small keeps drawdowns manageable.
Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. This page is general information, not investment advice. Read the Risk Disclosure.