Risk per trade: the 1-2% rule
What you learn in 3 minutesThis lesson is about the word 'risk' as it appears on a trading platform. On a platform, risk is not a feeling. It is a number you type into an order box before you click buy or sell. That number is the most you are willing to lose if the trade goes against you. Everything else — the size of the trade, where you put the stop, where you aim to take profit — is worked out from that number. Many beginners pick a trade size first and then hope. This lesson shows why the order matters. We use a deposit of A$1,000 and two different risk amounts: A$10 and A$200. You will see how the account path changes over 20 trades when the same market move happens.
A$10 risk versus A$200 risk on 20 trades
| Step | Amount | Note |
|---|---|---|
| Starting deposit | A$1,000 | The money in the account before any trade. |
| Risk per trade — small | A$10 | 1% of A$1,000. This is the amount lost if the stop is hit. |
| Risk per trade — large | A$200 | 20% of A$1,000. This is the amount lost if the stop is hit. |
| Number of losing trades in a row | 20 | A run of losses. It can happen. It is not rare. |
| Account after 20 losses at A$10 risk | A$800 | A$1,000 minus (20 × A$10) = A$1,000 − A$200 = A$800. |
| Account after 20 losses at A$200 risk | A$0 | A$1,000 minus (20 × A$200) = A$1,000 − A$4,000, so the account cannot cover the losses. It is wiped out before trade 20. |
| Trades survived at A$200 risk | 5 | A$1,000 ÷ A$200 = 5. After five losses the account has no money left. |
Your broker may round the trade size, charge a spread or commission on top, and quote a slightly different exchange rate. These figures are schematic and do not include those costs.
The mistake people make here
The common mistake is to choose the trade size first, then look for a stop that fits the money left. That reverses the order. The risk amount must come first. Decide A$10 or A$20 before you look at the chart. Then place the stop where the market would prove you wrong. Then calculate the size from those two numbers. If the size is too small to be allowed by the broker, skip the trade. Do not widen the risk to make the size work.Check yourself
You have A$2,000 and risk 1% per trade. How much is that in A$?
1% of A$2,000 = A$20. You risk A$20 on the trade.
You risk A$20. Your stop is 20 pips away. One pip on your chosen size is worth A$1. What size do you use?
A$20 ÷ 20 pips = A$1 per pip. So you choose a size where one pip equals A$1. On AUD/USD, one standard lot is 10 units of the quote currency per pip, so A$1 per pip is 0.10 standard lots. The size follows from the risk and the stop, not the other way around.
If you risk A$200 per trade on a A$1,000 account, how many losing trades in a row wipe the account?
A$1,000 ÷ A$200 = 5. Five losses in a row and the account has no money left to trade.