Risk per trade

Risk per trade is the limit you set on how much a single trade can cost you if it goes against you. Framed as a small slice of your account, it stops any one loss from doing serious damage. It is the quiet habit that keeps a trading account alive long enough to learn.

What risk per trade means

Every trade has a level where you would accept that it has not worked and close it. The gap between your entry and that exit, multiplied by the size of your position, is the amount you have put at stake. Risk per trade is a ceiling you place on that amount before you open the position, decided calmly in advance rather than in the heat of a moving market.

Why the cap is the foundation of survival

Losing trades are a normal part of the process, not proof that your method is broken. When each loss is small next to your account, a run of them is survivable and you are still there to trade the next day. When a single loss can take a large bite, one poor trade can undo a long stretch of careful progress. Capping the downside on every trade is what keeps an account alive long enough for a method to prove itself.

In practice the cap is written as a percentage of the account and then converted into cash. Many traders keep it small, illustratively around 1 to 2 percent, so no single trade carries outsized weight. Suppose, as an illustration, an account holds 5,000 units of currency and the cap is 1 percent: one percent of 5,000 is 50, so no trade would be arranged to lose more than 50 units, and at 2 percent the figure would be 100. Because the cap is a percentage, that cash amount rises and falls with the balance on its own.

See it in money terms

The profit-and-loss calculator below turns an example position into a cash result. Enter a sample trade and see how the size of the price move and the size of the position combine, so a percentage cap stops being an abstract rule and becomes a figure you can picture before you ever place an order.