How Much to Risk per Trade

Risk per trade is the share of your account you lose if a trade hits its stop. Many traders keep it at 1 to 2%.

At that size, a 10-loss streak costs about 10 to 18% of the account. At 10% per trade, the same streak costs 65%.

Your edge decides whether a strategy makes money over hundreds of trades. You only get to hundreds of trades if what you risk on each one lets you survive the streaks on the way.

The free lesson on this page has you take 10 losses in a row at a size you pick, then gives that size to 100 traders. A sandbox below it lets you build your own strategy and try to break it.

What does a losing streak cost at each risk size?

Ten losses in a row on a $10,000 account, each one a fixed percentage of what is left:

Each loss is a little smaller than the last, because it is a percentage of a smaller account. At 10%, the first loss costs $1,000 and the tenth costs $387.

An account that loses half has to make 100% to get back.

How many traders lose half their account?

The lesson gives 100 traders the same strategy: it wins 3 trades in 10, and a win makes 3 times what the trade risked. Each trader starts with $10,000 and takes 100 trades. Only the size changes.

These come from 20,000 simulated traders per size under the lesson's rules. The lesson's own 100 land near them.

At 10%, even the middle trader ended with less than at 5%.

Why do traders risk 1 to 2% per trade?

Because their worst streaks are longer than they expect. A strategy that wins 3 trades in 10 loses 10 or more in a row in 58% of runs of 100 trades, as lesson 2 shows. At 1 to 2% that streak costs 10 to 18% of the account. At 10% it costs 65%.

A strategy that wins more often has shorter streaks, so every size hurts it less. The lesson's second crowd, with the 6-in-10 strategy, shows that.

After a losing streak, keep the same percentage. As the account shrinks, each loss shrinks with it. Double up to 4% after five losses at 2%, and the sixth loss costs $362 instead of $181.

How do you turn risk per trade into a position size?

Divide your dollar risk by the distance to your stop loss. Risk is what you lose if you are wrong, which is a different number from how much you buy.

Position = risk ÷ distance to the stop loss

On a $10,000 account at 1% risk, a trade can lose $100:

The closer the stop, the bigger the position for the same risk. Pick the risk first, then divide by the stop distance to get how much to buy.

The position size calculator works it out in shares from your entry and stop prices.

Can you find a size that survives and still grows?

The second player on this page is a sandbox. You set how often a strategy wins, how much a win makes and how much each trade risks, and 100 traders take 100 trades with it.

Its challenge fixes the strategy at 3-in-10, where a win makes 3 times the risk. You pick the size. To pass, no more than 5 traders in 100 can lose half, and the middle trader has to end above $12,500.

Around 2% meets it, and so does 3%, with 4 in 100 losing half. At 1% the middle trader ends near $12,000, short of the goal. At 5% about 1 trader in 5 loses half.

Key points

• Ten losses in a row cost about 10% of the account at 1% risk, and 65% at 10% risk.
• Losing half takes a 100% gain to get back.
• The lower a strategy's win rate, the longer its streaks and the smaller its size has to be.
• Position = risk ÷ distance to the stop loss. Pick the risk first.

Press Start above and take your 10 losses, then try the sandbox below. Lesson 4 covers what the risk to reward ratio does and does not tell you.