Risk per trade: the 1-2% rule
What you learn in 3 minutesA reader asks: how do I know how much I can lose on one trade before I even look at a chart? The answer is a single number, chosen before anything else. On a R18 410 account, risking 1% means R184 is the most one trade may lose. Risking 2% means R368. Every later decision — how big the position is, where the stop sits, where the target sits — comes from that one number. If you cannot state your risk in rand before you enter, you are not trading a plan; you are guessing.
R10 versus R200 on a R1 000 deposit over 20 trades
| Step | Amount | Note |
|---|---|---|
| Deposit | R1 000 | Starting account balance. |
| Risk per trade, small | R10 | 1% of R1 000, calculated as 0.01 × R1 000. |
| Risk per trade, large | R200 | 20% of R1 000, calculated as 0.20 × R1 000. |
| Loss after 20 trades, small risk | R200 | 20 × R10 = R200, assuming every trade loses. |
| Loss after 20 trades, large risk | R4 000 | 20 × R200 = R4 000, which is more than the R1 000 deposit, so the account is gone before trade 20. |
| Account left, small risk | R800 | R1 000 − R200 = R800, still trading after 20 losses. |
| Account left, large risk | R0 | The account cannot fall below zero; the broker closes positions when margin runs out. |
Brokers may round position sizes, charge spreads and commissions, and quote slightly different USD/ZAR prices. The figures here are schematic and ignore those costs.
The mistake people make here
The common mistake is choosing lot size first and only then asking what the stop should be. That reverses the order. If you pick 0.10 lots on USD/ZAR and your stop is 200 pips away, your risk is far larger than you intended, and you may not notice until the loss appears. Instead, write down the rand amount you are willing to lose — say R184 on a R18 410 account — then work backwards to find the position size that makes your stop equal that amount.Check yourself
On a R5 000 account, you risk 2% per trade. What is the rand risk on one trade?
2% of R5 000 is 0.02 × R5 000 = R100.
If USD/ZAR is 18.4100 and you risk R100 with a 50-pip stop, roughly what position size does that allow?
One pip on USD/ZAR is about R0.0001 per unit. A 50-pip stop is 50 × R0.0001 = R0.005 per unit. R100 ÷ R0.005 = 20 000 units. That is a rough figure; the broker's contract size and rounding will change it.
You lose 10 trades in a row, each risking R50. How much is left of a R1 000 account?
10 × R50 = R500 lost. R1 000 − R500 = R500 left.