FX · Managing FX risk · lesson 1 of 9 · 6 min read · David Alexander
Risk per trade: the number you choose first
risk per trade
Risk per trade is the fraction of your account you will lose if a single trade hits its stop, chosen as a fixed percentage before any chart is opened. It is the first number in every position-size calculation and the main input in whether a losing streak is survivable, because a fixed fraction shrinks in money terms as the account shrinks and can never empty it in one run of ordinary bad luck.
Module 3 ended with a bill you can compute before entering. This module starts with a different number you choose before entering: how much of your account a single wrong trade is allowed to take.
Most beginners meet this question backwards. They pick a position size that feels reasonable, watch the account move, and discover afterwards what they were risking. The order is the error. The risk comes first, and everything else in this module is arithmetic that follows from it.
Why a percentage rather than an amount?
A fixed money amount ignores the account it comes from. The same loss is a rounding error on one balance and a wound on another. A fixed percentage scales itself: as the account falls, the money at risk falls with it, and as it grows, the risk grows in proportion.
That self-scaling is the survival property. Lose a fixed fraction repeatedly and the account decays gradually; lose a fixed amount repeatedly and the account hits zero on schedule. Lesson 6 prices this exactly, and lesson 7 turns it into a probability.
What does the choice actually control?
Sequences. Any single trade's loss at any sensible fraction is absorbable. What the percentage controls is what eight losers in a row do - and eight losers in a row is an ordinary event for methods with ordinary win rates, which module 5 will make plain. A run that dents one account destroys another, and the only difference between them was this number, chosen at the start.
The choice also sets your relationship with lesson 2's arithmetic: given a stop distance, your percentage is what decides the position's size. Traders who feel their size is imposed on them have it inverted - the size is the output.
Worked example
figures in USDAn account of $12,000, a chosen risk of 1% per trade, and a EUR/USD setup whose stop sits 25 pips away.
- Choose the fraction first: 1% of $12,000 fixes the money a wrong trade may take at $120.00.
- The trade's stop sits 25 pips away. At $10.00 per pip per lot, the risk budget buys 0.48 lots - 48,000 units of the base currency.
- Whichever way the trade resolves, the chosen number did its work at entry: a stop-out costs $120.00 and no more, and a winner's size was set by the same rule that capped the loser.
What this means for you
Write your percentage down before your next chart is open, and treat changing it as a decision with a reason, never a reaction to the last trade. The number is yours to choose; what is not optional is having chosen it. Lessons 6 and 7 give you the arithmetic to judge whether the number you wrote is one your account can live with.
Try it yourself
Position size calculator
How much to buy or sell so a stopped-out trade costs exactly what you planned to risk.
Check your understanding
Question 1 of 3
What does a fixed-fractional risk rule hold constant across trades?