how to find the amount to risk per trade ?

[Attila the trader]

Hi,
I know it depends on the trading method, instrument, individual expectations and personality, but is there a way to derive a figure, other than arbitrarily saying like 5% of the account , also how did the idea of risking 2% of the account , which is stated frequently, on tutorials came about?

 

[Mumpsimus]

You might with advantage investigate the "Risk of Ruin" formula which helps to determine just how easily you can lose your shirt and equally, how to avoid doing so.

 

[HeavLeighGill]

I've always seen it recommended to risk 1% or 2% of your total account balance as well and have followed that personally at times, although I've also wondered why so many traders stick with that. I also saw advice once that recommended making adjustments based on how confident you are in a trade, which has worked for me a couple of times. As for a more detailed calculation of it, I'm not sure but would like to know if there is one.

 

[Farm Yard Forex]

Risk of ruin is a good shout. You need to consider natural variance as there will be period where your trades are good but the trade still loses. If you are taking a 1% risk then that can happen 100 times before you blow the account, 2% would be 50 times etc. Since capital perservation is key it is clear why these % risks are often adhered to.

 

[Attila the trader]

I've always seen it recommended to risk 1% or 2% of your total account balance as well and have followed that personally at times, although I've also wondered why so many traders stick with that. I also saw advice once that recommended making adjustments based on how confident you are in a trade, which has worked for me a couple of times. As for a more detailed calculation of it, I'm not sure but would like to know if there is one.

that 1% to 3% of your entire account being risked per trade and not higher, actually makes a lot of sense , go look into the probability of having consecutive losses and the risk of ruin . if you have a win rate of 60% (lot of people think that there one is better than it really is) you have about a 37% chance of having 5 losses in a row! that's a very big chance , and if you are risking more than 3% ; your account would be down severely and your mood would be even worse . if you lose half of your account you'll have to double your money just to get to where you were , scary stuff!

 

[sharabela]

I personally use 2% risk. I have found that most of the experienced traders recommend that. However, if we are trying a new strategy, we may go with less risk such as 1%. It is all about knowing the art of surviving in the market. The less risk you take, the more chance you have to survive.

 

[LuckyMac]

2% comes from the possible risk of ruin on your account. No matter the strategy you will have losing streaks. Even with a profitable strategy probabilities state over 10000 trades there is a strong chance you will lose 13 in a row that doesnt mean youre strategy is flawed it is just maths. Youre account has to be able to handle that

 

[LuckyMac]

Same here, I prefer sticking with 2%.

For sure, also if you have a net postive risk to reward you could be gaining 5/6% a trade so definitely no need to go higher

 

[pathsofglory]

The 1% or 2% rule is a standard that should be followed by traders most of the time. It is so often recommended because by limiting your loss to 1 or 2% you are increasing the chances of surviving the market for longer. However, if you are very sure about a trade you can also risk more. It just depends on your risk tolerance.

 

[Farm Yard Forex]

I only use 1% as based on risk of ruin it gives me plenty of breathing space and I am happy with the risk to reward of the trades that I take. Risk first, reward second. Can't trade with no capital left!

 

[Attila the trader]

I was also thinking about this. Is this rule applicable on beginners as well?

its more important to beginers

 

[K.Stanley]

Usually it is best that whatever you can invest should be not more 2% of your capital in your trading. Best to use 1% or even lower if you are new to trading.

 

[Henow1969]

Risk a certain percentage or dollar amount on each trade. Using the 1% limit, you could risk $100 per trade if you have a $10,000 trading account. You can risk $50 per trade if your risk limit is 0.5%.

 

[Melodiousmelody]

I believe this thumb rule should be followed - Never put more than 1% of your capital or your trading account into a single trade.

 

[tomorton]

Recognise also the cumulative effect of a string of losers will have on your mind-set.

How will you handle a loss from your account that has built up now to 50%? Will you still trade the same way now that half your money is gone? Or will you start taking even higher risks to get the money back?

You are far less likely to see losses run up to such a high level as half your account if you stick with just 1 or 2% maximum risk per trade.

 

[Farm Yard Forex]

I believe this thumb rule should be followed - Never put more than 1% of your capital or your trading account into a single trade.

I personally see now reason to exceed this number but we're all different I guess.

 

[Resolve]

I personally see now reason to exceed this number but we're all different I guess.

The Risks present in our trades need to be reduced by us.

 

[Farm Yard Forex]

I agree. A greater focus on risk is required by many traders I feel.