How much to risk per trade: the 1% rule and position sizing

Most traders risk between 0.5% and 2% of their account on each trade, and 1% is a sensible default for beginners. That means if the stop is hit, you lose about one hundredth of your account, and the position size is worked out from the stop so the loss stays at that amount.

The question sounds like it is about how much to buy. It is really about how much you are willing to lose if the trade is wrong, which is a far more useful number.

What is the 1% rule?

The 1% rule says: never lose more than 1% of your account on a single trade. On a $10,000 account that is $100. On a $2,000 account it is $20. It does not say you can only buy $100 worth of a coin. It says that if the price reaches your stop, the loss should be $100.

The amount you risk is called R. If you risk $100, then 1R is $100, a trade that makes $200 is +2R and a full loss is −1R. Thinking in R lets you compare trades of different sizes and coins of different prices on the same scale.

Why 0.5–2% and not more?

Every strategy has losing streaks, including good ones. The risk per trade has to be small enough that a long streak hurts but does not end your ability to trade. Between 0.5% and 2% is the range most traders settle on:

• 0.5% suits beginners, new strategies that are not yet tested, and anyone who is in a drawdown.
• 1% is a good default once you have a written plan and a journal.
• 2% is the upper end, for traders with a long record on a strategy they know well.

Pick one number and use it on every trade. Changing it because a trade “looks better” turns your results into a record of your mood.

How do you calculate position size?

Once you know the risk in dollars, the stop decides the rest. The formula is:

The result is the number of coins to buy. Multiply by the entry price to see the position in dollars. Here are three examples.

In all three cases a stopped-out trade costs exactly 1% of the account, even though the positions range from 10% to 50% of it. A wide stop gives a small position. A tight stop gives a large one. Both are fine, as long as the stop is placed where the trade idea is wrong and not where it gives a nice size. Where that is gets its own guide: where to put a stop loss.

A shortcut: position as a share of the account = risk % ÷ stop distance %. Risking 1% with a 0.5% stop means a position of twice the account, which needs leverage. That is a warning sign.

What losing streaks do to your account

Ten losses in a row sounds unlikely until it happens. Every strategy has runs of losses, and the longer you trade, the longer the worst run you will see. Here is what ten straight losses do to a $10,000 account when each trade risks a fixed share of what is left:

At 1%, a bad run is an annoying month. At 5%, the same trades take away four tenths of the account. Only the size was different.

Why drawdowns are harder to recover from than they look

Losses and gains are not symmetrical. After a loss you have less money working, so you need a bigger percentage gain to get back to where you started:

The 1% trader from the streak above, down 9.6%, needs about +10.6% to recover. The 5% trader, down 40.1%, needs about +67%. That is the real reason to keep risk small: deep drawdowns take a very long time to climb out of, and they push people into bigger, worse trades trying to get it back.

Total open risk and correlation in crypto

The 1% rule applies to each trade, but your account does not care how the risk is split. Five open trades at 1% each is 5% of the account at risk at the same moment.

In crypto that matters more than in most markets, because coins tend to move together. When Bitcoin drops hard, most altcoins drop with it, often further. Five long trades on five different altcoins can behave like one large long trade on the whole market. If they all hit their stops in the same hour, you lose 5% in one move.

Two habits help:

• Cap total open risk. Choose a ceiling, for example 3% to 5% of the account across all open trades, and do not open a new trade that would push you past it.
• Count similar trades as one. Three longs on coins that follow Bitcoin closely are mostly one bet. Either take the best of them or split your usual risk between them.

Moving the stop to entry after taking half off at target 1 also frees up risk: a trade with its stop at entry no longer counts against the cap, apart from fees and slippage.

Does leverage change how much you risk?

No. The stop and the position size decide the risk. Leverage only decides how much of your own money the exchange holds as margin for that position.

The danger comes when leverage makes the position bigger instead of the margin smaller. Put $5,000 of margin in at 5× and you hold $25,000. The same 2% stop now costs $500, or 5% of the account.

Leverage also adds a liquidation price. If that price sits closer to your entry than your stop, the exchange closes you out before your stop is reached, and your real risk is bigger than you planned. Always check that the liquidation price is well beyond the stop. Leverage can wipe out an account fast, and beginners are better off without it.

Fees eat small stops

Fees are charged on the size of the position, not on the risk. At 0.1% to get in and 0.1% to get out, a round trip costs about 0.2% of the position. With a tight stop the position is large, so the fees become a big share of R.

In the second case a losing trade costs about 1.4R, and a winner has to travel further just to pay the fees. The setups on this site skip any trade where fees would cost more than 0.3R. With 0.2% round-trip fees, that means a stop less than about 0.67% from entry is usually too tight to be worth it.

Common mistakes

• Sizing by feel. Buying “about $1,000” of every coin means the risk changes with every stop, so a few wide stops can do far more damage than you expected.
• Moving the stop to fit the size. Pulling a stop closer so you can buy more puts it inside normal noise, where it gets hit even when the idea was right.
• Raising risk after a loss. Doubling up to win it back is how a normal losing streak turns into a deep drawdown that needs a huge gain to recover.
• Ignoring total open risk. Several correlated trades at 1% each can lose together, so the real risk is the sum, not the single number.
• Treating leverage as free size. Higher leverage on the same margin multiplies the loss at the stop and brings the liquidation price closer.
• Forgetting fees on tight stops. A trade that looks like it risks 1R can really cost 1.4R once round-trip fees on a large position are added.

What to check

1. What is 1R in dollars for this trade? Multiply your account by your fixed risk %. Write the number down before you look at the entry, so the size of the opportunity does not change it.
2. Where is the stop, and why there? The stop should sit where the trade idea is proven wrong. If you cannot explain the stop, you cannot trust the size that comes from it.
3. Did you size from the stop? Divide 1R by the distance from entry to stop. If the result is more than your account, the stop is very tight and you would need leverage to take it.
4. How much is already at risk? Add up the risk on every open trade whose stop is still below entry. If this trade takes you over your cap, skip it or wait for another trade to be closed or moved to entry.
5. Is this trade a copy of one you already hold? Another altcoin long during a Bitcoin-led move is mostly the same bet. Treat related trades as one when you think about risk.
6. What do fees cost in R? Divide round-trip fees by the dollar risk. Above about 0.3R, the trade mostly pays the exchange.
7. If you use leverage, where is liquidation? It must be well beyond your stop. If it is not, the position is too big for the margin behind it.

For the full pre-trade routine see what to check before any trade. If you are just starting out, crypto trading for beginners shows where risk fits in the order of things to learn. Nothing here is financial advice. Crypto is volatile, and every trade can lose.