The 1% rule in trading: position size, stop-loss and leverage
Learning to trade · · 6 min
The 1% rule in trading caps the risk per trade: if the stop-loss fires, you lose no more than 1% of the account balance. It does not mean putting 1% of the account into a position: position size comes from the distance to the stop, dividing the risk amount by it. Leverage changes the margin, not the risk amount.
By Viktor Skrin
In short: the three pillars of risk management
| Element | What it provides | How to apply it |
|---|---|---|
| Risk per trade | limits the loss from a single mistake | 1–2% of the balance per position is a common choice |
| Stop-loss | locks in the loss in advance | set before entering the trade, not after |
| Account drawdown limit | stops a losing streak | on reaching the limit, pause trading |
What is risk management in trading?
Risk management is a set of rules that define how much of the account you are willing to lose on a single trade and overall over a period. The goal is not to avoid losing trades: every trader has them. The goal is to make sure that one mistake or one losing streak does not destroy the account.
Without such rules, a trader usually runs into two mistakes:
- Position too large. A hypothetical example: a trade that takes 20% of the account when it loses. Three such losses in a row leave about half the money.
- No stop-loss, or the stop is moved. A loss grows in an open position, the trader waits for a «recovery», and the account sinks into a deep drawdown.
How drawdown works and why it is harder to recover than to suffer is explained in the article on maximum drawdown.
What is the 1% rule in trading?
The 1% rule limits the risk amount per trade, not the position size. The distinction matters.
Wrong interpretation: open a position worth 1% of the account.
Correct interpretation: lose no more than 1% of the balance if the stop fires.
Everyone picks their own risk percentage: 1% is a common value for a cautious start, not a market requirement or a rule that guarantees a result.
A hypothetical example, not the result of a real account. Balance $10,000, risk 1% — $100. A stock trades at $50 and the stop-loss is 5% below entry, at $47.50, a distance of $2.50. Position size: $100 / $2.50 = 40 shares worth $2,000. The distance to the stop is the loss per share, and the risk on the whole position is fixed at $100.
If the stop were 1% below entry, the distance would be $0.50 and the position could be 200 shares worth $10,000. The risk in money is the same $100, but the position is five times larger.
How do you calculate position size in trading?
Position size = risk amount / distance to the stop in money
Step by step:
- Take the account balance.
- Multiply it by the risk percentage (for example, 1%): you get the risk amount in money.
- Choose the stop-loss level according to your strategy.
- Work out the distance from entry to stop in money per unit of the asset.
- Divide the risk amount by that distance: you get the position size.
For futures and other leveraged instruments there is a ready estimate: in the calculator on the Sufics liquidations page you enter the entry price, leverage, maintenance margin, account balance, risk per trade in percent and the stop in percent from entry, and it returns the position size and an approximate liquidation price. It is an estimate for isolated margin: the exchange calculates the exact price from the mark price, with risk tiers and fees.
How does leverage affect position size?
Leverage lets you open a larger nominal position with less margin. It does not change the risk amount if the stop is set in advance.
A hypothetical example. A futures position with leverage of 10 is opened at 100, with the stop-loss at 99 (a 1% move). The position's notional is $1,000 and the margin is $100. If the stop fires, the loss is $10: 1% of the notional and 10% of the margin.
That is why the result of each trade in the Sufics trade feed is expressed as a percentage of the position's margin. That percentage cannot be compared with the drawdown of the whole account: they are different numbers with different bases.
How much is left in the account after a losing streak?
A hypothetical calculation without fees: each loss equals a fixed share of the current balance.
| Risk per trade | After 5 losses in a row | After 10 | After 20 |
|---|---|---|---|
| 1% | about 95% of the account | about 90% | about 82% |
| 5% | about 77% | about 60% | about 36% |
| 10% | about 59% | about 35% | about 12% |
To get from 60% back to the starting amount you need a gain of about 67% on what remains. The deeper the drawdown, the longer the way back: that is why a small risk per trade protects not only against one loss but against a streak.
Why set an account drawdown limit?
Besides the per-trade limit, many traders set a loss limit for a day or a month: for example, «when I lose a pre-agreed share of the account I stop trading and review why». This is not an admission of weakness; it is protection against periods when the strategy has stopped working but the trader keeps opening positions.
With leveraged trading such periods arrive quickly: a few losses in a row produce a noticeable drawdown within days. A drawdown limit is one of the rules that keeps a loss from getting out of control.
Where to start in practice?
- Choose the risk percentage per trade and do not change it in the middle of a losing streak.
- Before entering, write down three numbers: the entry price, the stop level and the risk amount in money.
- Calculate position size with the formula, not by eye; pick leverage to fit the margin you want, not the other way round.
- Decide in advance at what drawdown you stop and what you do next.
- Once a week compare actual losses with the plan: a moved stop means the rule was not followed.
How does the liquidation map relate to position risk?
One way to choose a stop level is to look at where, by estimate, the liquidation levels of other positions cluster. The liquidation map on Sufics shows such zones for BTC and ETH. It is a model, not exact exchange data, so it helps with orientation but does not replace your own risk calculation.
More on other topics for traders is in the Sufics blog.
Trading with leverage carries a risk of losing money, including the whole margin. This material describes risk-management principles and is not investment advice.
Key takeaways
- Risking 1% means the loss when the stop fires is no more than 1% of the balance. It is not the same as opening a position worth 1% of the balance.
- Position size = risk amount / distance to the stop. The further the stop, the smaller the position at the same risk.
- Leverage changes the margin, not the risk amount: with the same stop in money terms the loss is the same.
- A hypothetical calculation without fees: after 10 losses in a row at 1% risk about 90% of the account remains, at 5% about 60%.
- The rules work together: risk per trade, stop-loss, position size and an account drawdown limit.
Frequently asked questions
What is the 1% rule in trading?
It is a limit: risk no more than 1% of the account balance on a single trade. A hypothetical example: with a $10,000 account the stop-loss should fire at a loss of no more than $100, and the position size is chosen to meet that condition.
How do you calculate position size?
Define the risk amount (for example, 1% of the account), choose the stop-loss level and work out the distance from entry to stop in money per unit of the asset. Divide the risk amount by that distance: the result is the position size in units of the asset.
Does leverage change the risk amount?
No. Leverage changes how much margin the position requires, not the amount you lose when the stop fires. With the same stop in money terms the risk is the same.
Why set an account drawdown limit?
To cap a losing streak. If you decide in advance «when I lose a set share of the account I stop trading and review my trades», a run of failures will not wipe out the whole deposit.
Does a stop-loss protect against every loss?
No. A stop fires at the market price. In a very sharp move, over a weekend or during a liquidity gap, the execution price can be worse than the stop level. This is called slippage.
