Trading 1% of your account?

Hi everyone! I’m new to BabyPips and new to trading. I’m doing ok so far, learning the basics and having a mess around with currency pairs.

I just have a question, I hear a lot of people saying to only risk 1% of your account when trading but I’m confused as to what the 1% refers to. Does it mean the Estimated Margin needs to be 1% max of yor account value when placing a trade? Or does it mean to set the Stop Loss to be 1% max of your account size?

Any help much appreciated!

Thanks

Neilos :blush:

Hi Neilos, and welcome to the forum. :cool:

It means that if the price moves against you and hits your stop-loss, that will cost you no more than 1% of the funds in your account (including spread/dealing-costs).

Kind of … except that you should always determine your stop-loss [B]first[/B] from whatever parameters (e.g. volatility-related, or whatever) you routinely use in order to determine your stop-loss distance rather than allowing its position to be artifically imposed on you by your chosen “1% parameter”, and then calculate your position-size [B]after[/B] knowing how many pips away it is.

Not [I]everyone[/I] says that “1%” is right, of course: it’s only an opinion (albeit typically quite a good one).

Ideally, that percentage should be derived from knowing the win-rate and therefore knowing how many net losses (not just consecutive ones, but “overall net losses”) you’re allowing for, having worked that out by prolonged observation on demo first. But certainly in the absence of having done that accurately, in my opinion 1% is a good starting-figure, albeit perhaps subject to later amendment in the light of increased experience.

yes thats what 1 percent rule is im afraid if i could answer your question :rolleyes:

Great answer Lexys

In my opinion we need to invest that extent of our money which we can afford to loose.

Play with this easy calculator of risk-of-ruin (change %equity) to see the probability to end with deposit blowout :slight_smile:
Risk of Drawdown and Ruin Calculator - Wisdom Trading

Hi Lexys, thanks for all the info, sorry I took ages to reply! The advice is much appreciated, I’ll see how I get on.

Many thanks,

Neilos :slight_smile:

[QUOTE=lexys;799684]Hi Neilos, and welcome to the forum. :cool:

It means that if the price moves against you and hits your stop

I like 1% rule of trading . Because with forex risk much percentage means we can suffer loss more than our expectation. If 1% is used each pip is using 1% so we have o handle it ar our preferred pips. More % will use much amount from your account.

This isn’t right [B]at all[/B]: if “1% risk-management” is used, each [U]trade[/U] is risking a total of 1% of the trader’s account, [B][U]not[/U][/B] each pip.