Forexintermediate

Forex risk management

Position sizing, stop placement, and the 1% rule.

TL;DR

Risk management in forex isn't about being right — it's about surviving when you're wrong. The 1% rule, hard stops, and position sizing matter more than your strategy.

The 1% rule

Never risk more than 1% of your account on a single trade. With $10K, max loss per trade is $100. A string of 10 losses takes you down 10% — survivable. Risk 5% and the same string wipes you out.

Sizing follows the stop

Decide stop level first, then size to risk budget. Position size = (account × risk%) ÷ (stop distance × pip value). Never adjust the stop to fit a position you wanted.

Stops, slippage, gaps

Stops aren't magic. Fast moves cause slippage. Weekend gaps are real. NFP/FOMC widens spreads — a 10-pip stop can become a 25-pip fill. Size for the worst case.

Worked example

Sizing with the 1% rule

$15,000 account. Short EUR/USD at 1.0850, stop 1.0890 (40 pips).

1Account$15,000
2Risk (1%)$150
3Stop distance40 pips
4Max pip value$150 / 40 = $3.75/pip
5Lot size0.375 lots = ~37,500 EUR
6Effective leverage~2.5:1 on $15K

Takeaway

Discipline scales position to stop, not vice versa. Effective leverage stays low even when broker leverage is high.

Common mistakes

What to avoid

!Risking 5–10% per trade and calling it 'aggressive'
!Removing or moving stops once a trade is live
!Sizing in 'lots' before computing risk
!Ignoring slippage and gap risk in stop placement
!Adding to losers to 'average down'
!Not having daily/weekly loss limits — revenge trading kills accounts

Self-check

Test yourself

Q1What's the 1% rule?+

Never risk more than 1% of account equity on a single trade.

Q2Why should size follow stop placement?+

Stops are decided by market structure (where the trade is wrong); position size adjusts so risk stays consistent across setups.

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