The 1% rule is a budget, not a commandment
Risking 1% per trade sounds simple. Without stop distance and position size math, it is meaningless.
Direct answer
The 1% rule means you risk at most 1% of account equity if your stop is hit. It is a loss budget per trade — not a prediction about how far price will move.
Beginners hear “risk 1%” and treat it like a magic number. Professionals treat it as one input in a sizing formula that also includes stop distance, pip or tick value, and whether the strategy’s edge is even measurable yet.
The formula in plain language
Dollar risk = account equity × risk percent. Position size = dollar risk ÷ (stop distance × value per unit). Skip any step and “1%” is just a slogan.
FAQ
- Wider stops with the same 1% risk require what change to position size?
- Smaller position size — more distance to stop means fewer units for the same dollar risk.
Continue in the curriculum
Learn this properly in a structured lesson
Guides give you context. The course gives you order, objectives, and a quiz so you know what stuck.
Risk · The 1% rule lessonEducational content only — not financial advice. Trading involves risk of loss. See our risk warning and editorial policy.