Risk per trade is what a single loss costs you, written as a share of the account. That amount is your 1R, and every sizing decision you make comes out of it. Pick it once, before you need it, because it's the number that decides whether a losing streak is a heavy track or the end of the account.
What is risk per trade?
It's the loss at your stop, not the size of the position or the margin it ties up. A large position with a tight stop can risk less than a small one with a wide stop. That amount is your 1R, and it's why traders count results in R multiples instead of dollars.
How much should you risk per trade?
Most traders land between 0.5% and 2%. Go lower when the strategy is new or the sample is thin, since the edge you think you have can still be luck. Going above 2% only makes sense when you hold several positions that don't lose together, which most retail traders don't have. The institutions that run 3 to 5% spread it across dozens of uncorrelated bets, so copying the number with three correlated trades copies the risk without the structure, which is a recipe for disaster in the end.
What does the number cost you?
Ten losses in a row arrive sooner than people expect. Here's the same streak at 4 risk levels, and what it takes to climb back:
| Risk per trade | After 10 losses in a row | Gain needed to get back |
|---|---|---|
| 1% | down about 10% | about 11% |
| 2% | down about 18% | about 22% |
| 5% | down about 40% | about 67% |
| 10% | down about 65% | about 187% |
The left column is a choice you make in a minute. The right column is a year of work. That gap is massive and basically ends any conversation, and drawdown recovery is where it gets tough.
Risk per trade, or risk per day?
Both, once you hold more than one position. Three trades that lose together are one trade with three times the risk. Cap your open risk as well as your per trade risk: three positions at 1% each is 3% on the table at once. If you trade a prop account, the daily loss limit is the real ceiling, and it sits far closer than your risk of ruin math suggests.
What people get wrong
Three things. Confusing risk with position size, which is the one that breaks accounts fastest. Assuming the stop fills where you put it, because gaps and slippage make the real loss bigger than the plan. And raising the number after a losing run to win it back faster, which turns a dip into a hole. Pick the percentage once, then let position sizing turn it into a quantity trade after trade.
Frequently asked questions
Related terms
- Sortino Ratio — How much return a strategy earns for the losses it actually makes you feel.
- Maximum Drawdown — The deepest hole a strategy has dug you into, peak to bottom.
- Sharpe Ratio — How much return a strategy earns for every unit of risk it takes.
- Volatility — How much and how fast a strategy's returns swing around.