Risk per trade: the 1-2% rule

Risk is the money that leaves the account when the stop is hit. It is not the size of the position. It is not the distance to the stop. It is a rupee figure chosen before the order is placed. That figure is the only number the account can control with certainty.

A common approach is to choose a lot size first, because a larger position feels like the way to make a small account grow. The stop is then placed where the chart seems to allow, and the risk becomes whatever it becomes. This order of decisions leaves the rupee loss unknown until after the trade is closed.

The alternative is to set the rupee loss first. If the account holds ₹83,250 and the chosen risk is 1%, the number is ₹832.50. That amount is fixed before the chart is studied. Position size, stop distance and target are then calculated to fit it.

Once the rupee risk is fixed, position size follows from two inputs: the stop distance in pips and the pip value of one standard lot. For USD/INR, one standard lot pays ₹10 per pip. If the stop is 25 pips away, one standard lot would lose 25 × ₹10 = ₹250 if the stop is hit.

The position size is the risk amount divided by that per-lot loss. With ₹832.50 at risk and ₹250 lost per standard lot, the result is 3.33 standard lots. Brokers may round to the nearest 0.01 lot, so the practical size is 0.03 standard lots. The rounding changes the exact rupee risk slightly, and that difference varies between brokers.

If the calculated size is below the smallest allowed lot, the trade is too expensive for the account at that stop distance. The answer is not to widen the stop or increase the risk. The answer is to skip the trade or find a setup where the stop can be tighter without being unrealistic.

The 1–2% range is not a prediction of winning trades. It is a limit on how much any single trade can damage the account. At 1% of ₹83,250, five losses in a row cost ₹4,162.50, leaving ₹79,087.50. At 20% per trade, the same five losses cost ₹83,250 and the account is gone.

A losing streak is normal. Five losses in a row is not rare over many trades. The small percentage keeps the account alive long enough for the trading method to be tested. It also keeps the decision-making calm, because the next trade does not depend on recovering a large loss.

The exact percentage between 1% and 2% depends on the account size, the number of trades taken at once, and the comfort of the person placing them. A larger account can use 1% and still have a meaningful rupee risk. A smaller account may find that 1% produces a position size below the broker minimum, which is a signal to trade less often or with a wider stop only if the risk amount stays the same.

A fixed rupee risk does not stay fixed as a share of the account. Risk ₹832.50 on an account of ₹83,250 and that is 1%. Lose it, and the account holds ₹82,417.50. Risk the same ₹832.50 on the next trade and it is now 1.01% of what remains. The rupee amount is unchanged, but the account is smaller, so each loss bites slightly deeper.

This is why many people set the risk as a percentage of the current balance rather than a rupee figure chosen once. At 1%, the next trade risks ₹824.18, not ₹832.50. The number shrinks with the account. The decline is slow, and that is the point: a run of losses reduces the amount at stake on each following trade, so the account cannot be emptied by a fixed sum that ignores what is left.

The reverse also holds. After a gain the balance is larger, so 1% is a larger rupee amount. The risk grows with the account rather than staying at a level set when the account was smaller. Recomputing the figure before each trade takes a moment and keeps the percentage honest.