Risk per trade: the 1-2% rule
Risk as a typed amount
The word risk on a platform is a number you enter before you click buy or sell. It is the most you are willing to lose if the trade goes against you. That number is not a feeling or a guess. It is a typed figure in the order box, usually in your account currency. On an Australian account, that currency is the dollar, written A$.
Everything else follows from that typed number. The size of the trade, where you put the stop, and where you aim to take profit are all worked out from it. If you pick the size first, you are hoping the market will fit your money. That reverses the order. The risk amount must come first, before you look at the chart.
Many beginners choose a trade size that feels comfortable, then look for a stop that fits the money left. That is the common mistake. Decide A$10 or A$20 before you open the chart. Then place the stop where the market would prove you wrong. Then calculate the size from those two numbers. If the size is too small to be allowed by the broker, skip the trade. Do not widen the risk to make the size work.
Pip value in local currency
A pip is the smallest standard move in a currency pair. On AUD/USD, one pip is a change of 0.0001 in the exchange rate. When the rate is around 0.6640, a move to 0.6641 is one pip up. A move to 0.6639 is one pip down. The value of that pip in your account currency depends on the size you trade.
On AUD/USD, one standard lot is 100,000 units of the base currency, which is the Australian dollar here. For a standard lot, one pip is worth about 10 units of the quote currency, which is the US dollar. That is not fixed in A$. It changes with the exchange rate. At 0.6640, 10 US dollars is about A$15.06, because 10 divided by 0.6640 equals 15.06. Your platform will show the exact pip value for your size.
If you trade 0.10 standard lots, one pip is worth about one tenth of that. At 0.6640, that is about A$1.51 per pip. If you trade 0.20 lots, it is about A$3.02 per pip. The pip value scales with size. You do not need to memorise these figures. You need to know that pip value in A$ is not fixed. It varies with the pair and the exchange rate. Your broker may also round the size and charge a spread or commission on top.
Account path under two risk amounts
Imagine a deposit of A$1,000 and the same market move over 20 trades. In one case you risk A$10 per trade. In the other you risk A$200 per trade. The market move is identical in both cases. Only the risk amount changes. The account path is very different.
With A$10 risk, five losing trades in a row cost A$50. That is 5% of the account. The account still has A$950. You can keep trading and wait for a winning run. With A$200 risk, five losing trades in a row cost A$1,000. That is the whole account. There is no money left to trade. The number of losses in a row that wipe the account is the deposit divided by the risk per trade. A$1,000 divided by A$200 equals 5. A$1,000 divided by A$10 equals 100.
The 1-2% rule is a guide, not a law. On a A$1,000 account, 1% is A$10 and 2% is A$20. Many beginners risk far more than that. They may risk 10% or 20% per trade. That shortens the number of losses in a row that end the account. The rule does not promise a profit. It only limits how fast a losing run can empty the account. The exact percentage you choose is up to you, but the order of decisions stays the same.
A$10 risk versus A$200 risk on 20 trades
| Step | Amount | Note |
|---|---|---|
| Starting deposit | A$1,000 | The money in the account before any trade. |
| Risk per trade — small | A$10 | 1% of A$1,000. This is the amount lost if the stop is hit. |
| Risk per trade — large | A$200 | 20% of A$1,000. This is the amount lost if the stop is hit. |
| Number of losing trades in a row | 20 | A run of losses. It can happen. It is not rare. |
| Account after 20 losses at A$10 risk | A$800 | A$1,000 minus (20 × A$10) = A$1,000 − A$200 = A$800. |
| Account after 20 losses at A$200 risk | A$0 | A$1,000 minus (20 × A$200) = A$1,000 − A$4,000, so the account cannot cover the losses. It is wiped out before trade 20. |
| Trades survived at A$200 risk | 5 | A$1,000 ÷ A$200 = 5. After five losses the account has no money left. |
Your broker may round the trade size, charge a spread or commission on top, and quote a slightly different exchange rate. These figures are schematic and do not include those costs.
Doing it once, step by step
You will now go through the order of decisions for one trade, from the risk amount to the final check. Do these steps on paper or in a demo account before you use real money.
- 01
Choose the risk amount
Decide the most you are willing to lose on this trade, in A$. Use a percentage of your account, such as 1% or 2%. On a A$1,000 account, 1% is A$10 and 2% is A$20. Write that number down before you look at the chart.
- 02
Place the stop where the market would prove you wrong
Look at the chart and find the price level that would show your idea is wrong. That is where the stop goes. Measure the distance from your entry to that stop in pips. Do not move the stop to fit a size you like.
- 03
Calculate the size from risk and stop
Divide the risk amount by the stop distance in pips. That gives the value of one pip in A$ for your trade. For example, A$20 risk divided by 20 pips equals A$1 per pip. Then find the size that gives that pip value. On AUD/USD, one standard lot is about A$15.06 per pip at 0.6640, so A$1 per pip is about 0.066 standard lots. Your platform will show the exact size.
- 04
Check the size against broker rules
Brokers set minimum and maximum sizes, and they may round your size. Check that your calculated size is allowed. If it is too small, skip the trade. Do not increase the risk to make the size work.
- 05
Add the costs
Your broker may charge a spread or commission on top of the risk you typed. These costs are not part of the risk amount, but they reduce your account. Ask your broker how they are charged, because they vary between brokers.
- 06
Write down the trade before you place it
Record the risk amount, the stop distance, the size, and the target. This makes the decision once, before emotions enter. After the trade, compare what you planned with what happened. The record shows whether you followed the order of decisions.
The mistake most people make here
The common mistake is to choose the trade size first, then look for a stop that fits the money left. That reverses the order. The risk amount must come first. Decide A$10 or A$20 before you look at the chart. Then place the stop where the market would prove you wrong. Then calculate the size from those two numbers. If the size is too small to be allowed by the broker, skip the trade. Do not widen the risk to make the size work.Check yourself
You have A$2,000 and risk 1% per trade. How much is that in A$?
1% of A$2,000 = A$20. You risk A$20 on the trade.
You risk A$20. Your stop is 20 pips away. One pip on your chosen size is worth A$1. What size do you use?
A$20 ÷ 20 pips = A$1 per pip. So you choose a size where one pip equals A$1. On AUD/USD, one standard lot is 10 units of the quote currency per pip, so A$1 per pip is 0.10 standard lots. The size follows from the risk and the stop, not the other way around.
If you risk A$200 per trade on a A$1,000 account, how many losing trades in a row wipe the account?
A$1,000 ÷ A$200 = 5. Five losses in a row and the account has no money left to trade.
Questions that come up next
Why is a fixed percentage better than a fixed dollar amount?
A fixed dollar amount does not scale with your account. If you risk A$50 on a A$500 account, that is 10%. The same A$50 on a A$5,000 account is 1%. A percentage keeps the risk the same share of the account as the balance changes. It also sets the loss in advance, so a single trade cannot take a large slice of the deposit.
How do I work out the percentage in dollars?
Multiply the account balance by the percentage, then divide by 100. On A$1,000 at 1%, that is 1,000 times 1 divided by 100, which equals A$10. On A$2,000 at 2%, it is 2,000 times 2 divided by 100, which equals A$40. The result is the most you plan to lose on that trade.
What happens if the stop is very wide?
A wide stop means fewer pips between your entry and your exit. With a fixed risk amount, the size must be smaller to keep the loss the same. If the size the maths gives is below the broker's minimum, the trade is not worth taking. You do not widen the risk to make the size fit.
Does the 1-2% figure apply to every account?
No. It is a common starting point, not a rule set by ASIC or any regulator. The right percentage depends on your balance, your experience and how often you trade. Some people use less than 1%. What matters is that you choose one number and keep it the same across trades.
Can I lose more than the amount I typed?
Usually not on a trade with a stop, because the stop closes the position at the level you set. But gaps in the market, slippage and platform errors can make the exit worse than planned. Spread and commission also sit on top of the loss. Treat the typed figure as a target, not a promise.
How do I pay money into an Australian trading account?
Most Australian brokers accept PayID, BPAY and cards. PayID and BPAY usually clear in the same or next business day. Card deposits are often instant but may carry a fee. The methods and fees vary between brokers, so check the funding page before you deposit.
The words used on this page
- pip
- The smallest standard move in a currency pair. On AUD/USD, one pip is a change of 0.0001 in the exchange rate. At 0.6640, a move to 0.6641 is one pip up.
- standard lot
- A fixed trade size of 100,000 units of the base currency. On AUD/USD the base currency is the Australian dollar. Smaller sizes are written as fractions, such as 0.10 standard lots.
- stop
- An order that closes your trade at a chosen price if the market moves against you. It is placed where the market would prove your idea wrong. The distance to the stop, in pips, is used to work out the trade size.
- spread
- The gap between the buying price and the selling price on a platform. It is a cost you pay on entry, and it varies between brokers and between busy and quiet times. It sits on top of any loss from the trade itself.
- commission
- A separate charge some brokers make on each trade, on top of the spread. It may be a fixed amount or a share of the trade size. Whether it applies, and how much, varies between brokers.
- slippage
- The difference between the price you expected on an order and the price you actually got. It is more common when the market moves fast or when news is released. It can make a loss larger than the figure you typed.
What to take away
- Choose the amount you are willing to lose before you look at the chart.
- Size, stop and target are all calculated from that amount, never the other way round.
- A percentage of the balance keeps the risk the same share as the account changes.
- Spread, commission and slippage sit on top, so the typed figure is a target rather than a promise.