Risk Per Trade
The percentage or dollar amount of your account you are willing to lose on a single trade. Typically 0.5–2% for most traders.
Risk per trade is the maximum you agree to lose if the stop-loss is hit. Keeping this constant converts a string of losses into a manageable drawdown rather than an account wipeout.
A 1% rule means 10 consecutive losers cost only ~10% of capital. At 10% risk per trade, the same streak wipes out about 65%. Small, consistent risk per trade is what allows compounding to work over time.
Example
$25,000 account, 1% risk per trade = $250 maximum loss. Combined with a stop placed $2 below entry, position size = $250 / $2 = 125 shares.
Related Terms
Capital Preservation
The principle of protecting trading capital above all else — because you cannot trade without capital, survival is the first objective.
BeginnerDrawdown
The peak-to-trough decline in account equity from a high point to the subsequent low before a new high is reached.
BeginnerKelly Criterion
A formula that calculates the theoretically optimal fraction of capital to risk per trade to maximise long-run account growth without ruin.
AdvancedMargin Call
A broker demand to deposit more funds immediately because account equity has fallen below the required maintenance margin level.
BeginnerMoney Management
The set of rules governing how capital is allocated, how large positions are, and how losses are limited across a portfolio of trades.
BeginnerPortfolio Heat
The total percentage of account capital currently at risk across all open positions simultaneously.
IntermediatePosition Sizing
Calculating exactly how many shares, contracts, or lots to trade so that a stop-out costs no more than your chosen risk percentage.
BeginnerRisk Capital
Money explicitly set aside for speculation that the trader can afford to lose in its entirety without affecting their financial wellbeing.
BeginnerRisk of Ruin
The statistical probability that a trader will lose enough capital to be forced out of trading entirely, given their edge and risk per trade.
AdvancedRisk Tolerance
The maximum level of financial loss and psychological discomfort a trader can absorb without deviating from their strategy.
BeginnerScaling In
Adding to a position in increments as price moves in your favour, building size only when the trade is proving itself right.
IntermediateStop-Loss
A pre-set price level at which a losing trade is closed to cap the damage before it grows larger.
BeginnerVolatility-Based Sizing
Adjusting position size inversely to market volatility so that each trade has a consistent dollar risk regardless of how much the asset moves.
Intermediate