Risk management: the 1% rule and position sizing

If you lose 10% of an account, you need 11.1% to get back. Lose 50%, and you need 100%. The deeper the drawdown, the harder the climb. That is why protecting capital comes before everything else.

A common guideline is to risk around 1% of your account on a single trade. With $1,000, that is $10. Ten losses in a row, which happens to every trader, still leaves the account mostly intact.

Your account is $2,000 and you risk 1% per trade: $20. Your setup needs a stop of 40 pips on gold, using the common convention of 1 pip = $0.10 move.

At about $10 per pip per standard lot, 40 pips is $400 per lot. $20 ÷ $400 = 0.05 lots. That is your position size. If the stop were 20 pips, the size would be 0.10 lots. The risk in money stays the same; the lot size adjusts.

Always check your broker's contract size and pip value. Some brokers quote gold differently, and the calculator is only as good as the numbers you put in.

• Using the same lot size for every trade. Different stops need different sizes.
• Raising risk after a loss to win it back. This is how small drawdowns become large ones.
• Ignoring correlated trades. Gold and several USD pairs can all move on the same news. Two trades can be one big risk.
• No daily or weekly loss limit. Decide in advance when you stop trading.

1. Account and riskExample: $1,000 at 1% means $10 of risk.
2. Stop distanceEntry 2,350.00, stop 2,346.00: 4.00 points on gold.
3. Value per pointOn most brokers 0.01 lot of gold gains or loses about $1 for every $1 move, so a 4.00 stop costs about $4 at 0.01 lot.
4. Lot size$10 ÷ $4 = 2.5, so about 0.02 to 0.025 lot. Round down, never up.

Contract sizes differ between brokers, so always check one pip or point value on yours. The free lot size calculator does the maths in seconds.

Your stop loss belongs where the setup is wrong, not where the money feels comfortable. Once the stop distance is fixed, the lot size is just maths: money at risk divided by (stop in pips × pip value).