Risk and Capital
Most retail sizing advice is written for a winning week. It tells you to risk one or two per cent per trade and stops there. The rule only earns its keep during the stretch nobody plans for: eight losses in a row, a strategy that has stopped paying, a month where nothing you do works. A sizing rule that survives that month is built differently.
Size from the loss, never from the entry
The professional habit is to decide the money first and the lot size last. You know what a trade may cost you before you know how many units you will buy. That sounds obvious, but the common retail sequence is the reverse: pick a lot size that feels normal, place a stop where the chart suggests, and discover the risk afterwards.
Work in this order. Decide the account risk in currency. Measure the distance from entry to the invalidation level in pips. Divide. The result is your size, whatever it happens to be. If the answer is an awkward 0.37 lots, round down, never up.
Fix the fraction, then leave it alone
Fixed fractional risk — a constant percentage of current equity — has one property that matters more than its elegance: it shrinks automatically when you are losing and grows automatically when you are winning. You do not have to make a decision in the middle of a drawdown, which is exactly when your decisions are worst.
The usual professional range is between 0.25 and 1 per cent per idea. Higher than that and a normal losing streak becomes an account-threatening event. The table below shows why the difference is not cosmetic.
| Risk per trade | Equity after 8 straight losses | Gain needed to recover |
|---|---|---|
| 0.5% | 96.1% | 4.1% |
| 1% | 92.3% | 8.4% |
| 2% | 85.1% | 17.5% |
| 5% | 66.3% | 50.8% |
Eight consecutive losses is not a disaster scenario. On a strategy that wins 45 per cent of the time, a run of eight will show up roughly once every three hundred trades. If you trade five times a week, you should expect to meet it about once a year.
Cap the portfolio, not only the trade
A per-trade cap is necessary and insufficient. Four open positions at one per cent each are not four one per cent risks if they are all effectively short dollar. Professionals run a second cap on total open risk — typically two to three per cent across everything — and a third on correlated risk within a single theme.
- Per trade: 0.5 to 1 per cent of equity.
- Total open risk: no more than 3 per cent at any moment.
- Single theme (one currency, one central bank, one commodity bloc): no more than 1.5 per cent.
Write the de-risking ladder before you need it
The rule that actually saves accounts is the one that reduces size automatically after a defined loss. Decide the ladder while you are calm and put it where you can see it.
- -4%Cut per-trade risk in half. Keep trading, keep journalling.
- -7%Halve again and restrict yourself to your two highest-conviction setups.
- -10%Stop for the rest of the month. Review, do not trade.
Notice that the ladder never asks you to increase size to recover. Recovery sizing is how a bad month becomes a bad year.
A sizing rule you can follow at 60 per cent conviction and a 6 per cent drawdown is worth more than an optimal rule you abandon.
When to scale back up
Symmetry matters. Give the recovery the same structure as the reduction: return to full size only after the account makes back half the drawdown, and only after ten trades at reduced size that you executed as written. Time alone is not evidence.
Written by Adrian Vestberg — former interbank FX dealer, now running a two-person discretionary desk. He does not sell signals, courses or managed accounts.