Risk management: how much should you risk on one trade?
Simple rules for sizing a position by its stop-loss distance and protecting your capital.
The core principle
Long-term results come not from a single trade but from how well you manage your losses. Many traders try not to risk more than 1–2% of their capital on any one trade.
How to calculate position size
- Decide how much to risk: for example, 1% of $1,000 capital = $10.
- Measure the distance between the entry price and the stop-loss: for example, 2%.
- Position size = risk amount / stop distance = $10 / 0.02 = $500.
Leverage does not change the position size; it only reduces the margin required.
Risk/reward ratio
When the profit target is larger than the risk (for example, 1:2), the overall result can be positive even if fewer than 50% of trades are winners.
Remember
- Set the stop-loss before you enter the trade.
- Do not increase your position size after a loss.
- Set a daily and weekly maximum loss limit.
This material is for educational purposes only and is not investment advice.
