CommunityRisk15 min readUpdated June 2

Risk per Trade: Why 1% Is Not 1% of Margin

Why 1% risk is not equal to 1% position size, and how to correctly calculate trade size, margin, leverage, and stop-loss damage.

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What does “1% risk” really mean?

When a trader writes “1% risk per trade,” he doesn’t mean that you should open a trade for 1% of the deposit. What he means is that if the trade is closed by the stop, your loss should be a maximum of 1% of the deposit.

If you have a deposit of $2000, then 1% risk is $20. This means that when the stop is triggered, you should lose approximately $20, and not just open a position with $20 of margin.

This is the key point:

Margin - the amount you put into the transaction as collateral
Position size - actual transaction volume taking into account leverage
Risk - the amount you will lose if the price reaches the stop

It is theposition size + distance to the stopthat determines how much you will lose.

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