Skip to content
Log in
← Glossary

risk per trade

The amount you lose if the stop is hit, usually stated as a small share of the account.

Risk per trade is the amount the account is planned to lose if the stop is reached, usually expressed as a small share of the account. It is a limit for sizing a position, not the amount to invest.

Estimate it before entering: select a percentage, multiply by the account balance, then choose a position size that fits the stop distance. Include spread, fees, and possible slippage in the estimate.

The actual loss can exceed the plan if execution is worse than expected. A series of losses can also reduce the account.

Example

Nora has $10,000 in a practice account and sets risk per trade at 0.5%. Planned risk is $10,000 × 0.005 = $50. For a made-up Bluefin Energy share, the entry is $30 and the stop is $28, a $2 distance. The matching size is $50 ÷ $2 = 25 shares.

If the stop fills at $28, the price loss is 25 × $2 = $50 before costs. Costs or slippage can make the account loss larger, so the example is a planning estimate.

Common mistakes

  • Treating risk per trade as the full position value.
  • Ignoring costs when choosing the risk amount.
  • Assuming the planned loss is a guaranteed maximum.
  • Most people who trade lose money.

Learn it in the course

  • Drawdown: why losses hit harder than gains · A 50% loss needs a 100% gain to recover: see drawdown, the recovery maths and how the same trades at a bigger size can sink an account that should have grown.
  • A losing streak is normal · See how long a losing run can last in a sound plan, and why one trade or ten trades prove nothing either way.
  • Risk per trade: a small share of the account · Fix how much of the account one trade may cost if it goes wrong, and see why a small share, such as 1%, keeps you alive through a long losing run.
  • Case: size three trades · Nora has three trade ideas and one 10,000-dollar practice account: work out the size, the risk and the real cost of each, the cap that binds and what a gap could do.
  • Case: compare two trade lists · Two journals, two styles: compare expectancy after costs, drawdown, sample size and discipline, then say which plan is worth continuing and what would change your mind.