Professional traders typically risk between 1% and 2% of their total account equity on any single trade. This approach ensures that a string of consecutive losses does not deplete the account balance. For an account with $10,000, a 1% risk limit means the maximum loss per trade is $100. If the trade hits the pre-determined stop-loss order, the trader exits the position immediately to prevent further capital erosion.
Calculating risk requires identifying the distance between the entry price and the stop-loss level. Position sizing is then adjusted based on this distance. If a trader has a $10,000 account and wants to risk $100, they must calculate how many shares or contracts they can hold so that a move to the stop-loss level results in exactly a $100 loss. This calculation must account for transaction costs and potential slippage.
Risking more than 2% per trade significantly increases the probability of account ruin. Beginners often start with 0.5% or 1% to gain experience while managing volatility. Trading involves significant financial risk, and past performance does not guarantee future results. Never trade with money that cannot be lost entirely.
How this answer was produced
AI-assisted draft, human-reviewed by AlphaScala editorial against our standards before publication. General education, not advice for your specific situation.