Risk per trade

It is the predetermined monetary amount or percentage of total trading capital a trader allocates as potential loss for one trade. This is typically set before entering a trade, often as a percentage, like 1% or 2% of the account balance. When combined with the stop-loss level, it dictates the position size. For example, if a trader risks 1% of a $10,000 account, they are willing to lose $100 on that specific trade.

For retail traders, defining risk per trade is fundamental to capital preservation. It prevents single large losses from significantly depleting the trading account, promoting disciplined trading habits. Without this limit, emotional decisions or unexpected market movements can lead to substantial drawdowns, making recovery difficult. It is a core component of effective risk management, helping maintain a consistent trading career.