Risk Management
Position Sizing: The 1% Rule Explained
Why professional traders decide how much they can lose before deciding how much they might gain.
5 min read · Kanira
Risk is the one thing you control
You cannot control whether a trade works. You can control how much you lose if it doesn’t. Position sizing is the process of choosing a trade size so that a loss at your stop-loss stays within a pre-defined limit.
A simple framework
Many educators teach a guideline of risking a small, fixed percentage of trading capital — often around 1% — on any single trade. The calculation is straightforward:
- Decide the maximum amount you are willing to lose on this trade (e.g. 1% of capital)
- Measure the distance between your entry and your stop-loss
- Position size = maximum loss ÷ distance to stop
- Round down, never up, and account for brokerage, taxes and slippage
Why it matters
Small, consistent risk means a string of losses — which every trader experiences — does not end your trading career. It also reduces the emotional pressure of any single decision, making it easier to follow your plan.
This article is educational and is not a recommendation to trade. Decide your own risk tolerance carefully.