Risk per trade: the 1-2% rule
Why a fixed rand risk comes before any chart decision
Most beginners open a chart, spot a pattern, and then decide how much to buy. That order puts the cart before the horse. The money you are willing to lose on one trade is a decision about your account, not about the market. It does not change when the chart looks exciting.
A fixed rand risk turns a vague fear into a number you can check. On a R18 410 account, 1% is R184. That figure stays the same whether you feel confident or nervous. It is the ceiling, not a target. You may lose less if your stop is hit early, but you may not lose more.
Once that number is set, every other choice becomes arithmetic. Position size is no longer a guess. Stop distance is no longer a hope. Target distance is no longer a fantasy. Each one is calculated from the rand risk you wrote down before you looked at the screen.
How the rand risk, stop distance and position size fit together
The relationship is simple: rand risk equals stop distance in pips multiplied by the value of one pip for your position size. If you know two of those, you can find the third. You always start with the rand risk, because that is the number you control before the trade.
On USD/ZAR around 18.4100, one pip is roughly R0.0001 per unit. That is a rough figure. Your broker's contract size and rounding will change it. If you risk R184 with a 100-pip stop, the stop is 100 × R0.0001 = R0.01 per unit. R184 ÷ R0.01 = 18 400 units. If the stop is 50 pips, the same R184 allows 36 800 units.
Notice that a tighter stop allows a larger position for the same rand risk. That does not make tighter stops safer. A stop that is too close to the current price may be hit by normal market noise. The rand risk stays fixed, but the probability of losing it changes with the stop distance.
Why the percentage stays small and what happens when it does not
A string of losses is normal. If you risk 2% per trade, ten losses in a row cost 20% of your account. On a R1 000 account, that is R200 lost and R800 left. To recover from R800 back to R1 000, you need a gain of 25%, not 20%. The smaller the remaining account, the larger the percentage gain needed to get back to even.
If you risk 10% per trade, ten losses in a row cost 100% of the account. There is nothing left to trade. The 1-2% rule is not about being right more often. It is about staying in the game long enough for your edge, if you have one, to appear.
Brokers may round position sizes, charge spreads and commissions, and quote slightly different USD/ZAR prices. Those costs come out of your account in addition to the rand risk you calculated. A risk figure that ignores costs is slightly optimistic. The 1-2% ceiling gives you room for those costs without turning a planned loss into an unplanned one.
R10 versus R200 on a R1 000 deposit over 20 trades
| Step | Amount | Note |
|---|---|---|
| Deposit | R1 000 | Starting account balance. |
| Risk per trade, small | R10 | 1% of R1 000, calculated as 0.01 × R1 000. |
| Risk per trade, large | R200 | 20% of R1 000, calculated as 0.20 × R1 000. |
| Loss after 20 trades, small risk | R200 | 20 × R10 = R200, assuming every trade loses. |
| Loss after 20 trades, large risk | R4 000 | 20 × R200 = R4 000, which is more than the R1 000 deposit, so the account is gone before trade 20. |
| Account left, small risk | R800 | R1 000 − R200 = R800, still trading after 20 losses. |
| Account left, large risk | R0 | The account cannot fall below zero; the broker closes positions when margin runs out. |
Brokers may round position sizes, charge spreads and commissions, and quote slightly different USD/ZAR prices. The figures here are schematic and ignore those costs.
Doing it once, step by step
You will set a rand risk limit, then use it to find a position size that matches your stop distance. Do this once per trade, before you enter.
- 01
Write down your account balance and your risk percentage
Check your account balance in rand. Choose 1% or 2% as your maximum risk per trade. Multiply the balance by that percentage to get your rand risk. For example, R18 410 × 0.01 = R184.
- 02
Decide your stop distance in pips
Look at the chart and choose a stop level that would tell you the trade idea is wrong. Measure the distance from your entry to that stop in pips. Do not move the stop closer just to allow a bigger position. The stop distance is a market decision, not a money decision.
- 03
Convert the stop distance to rand per unit
On USD/ZAR, one pip is roughly R0.0001 per unit. Multiply the stop distance in pips by R0.0001 to get the rand risk per unit. For a 50-pip stop, that is 50 × R0.0001 = R0.005 per unit.
- 04
Divide your rand risk by the rand risk per unit
Take your rand risk from step one and divide it by the rand risk per unit from step three. The result is your position size in units. With R184 risk and R0.005 per unit, the size is R184 ÷ R0.005 = 36 800 units.
- 05
Check the result against your broker's minimum and rounding
Brokers may round position sizes to the nearest 0.01 lot or similar. They may also have a minimum size. If rounding pushes your risk above your rand limit, reduce the size. Never round up if it breaks your risk ceiling.
- 06
Write the rand risk on your trade plan before entering
Record the rand amount you are risking, the stop distance, and the position size. If you cannot state the rand risk in one sentence, do not enter. This written number is what you check after the trade, not your memory of what you hoped.
The mistake most people make here
The common mistake is choosing lot size first and only then asking what the stop should be. That reverses the order. If you pick 0.10 lots on USD/ZAR and your stop is 200 pips away, your risk is far larger than you intended, and you may not notice until the loss appears. Instead, write down the rand amount you are willing to lose — say R184 on a R18 410 account — then work backwards to find the position size that makes your stop equal that amount.Check yourself
On a R5 000 account, you risk 2% per trade. What is the rand risk on one trade?
2% of R5 000 is 0.02 × R5 000 = R100.
If USD/ZAR is 18.4100 and you risk R100 with a 50-pip stop, roughly what position size does that allow?
One pip on USD/ZAR is about R0.0001 per unit. A 50-pip stop is 50 × R0.0001 = R0.005 per unit. R100 ÷ R0.005 = 20 000 units. That is a rough figure; the broker's contract size and rounding will change it.
You lose 10 trades in a row, each risking R50. How much is left of a R1 000 account?
10 × R50 = R500 lost. R1 000 − R500 = R500 left.
Questions that come up next
1% of what — my deposit now, or what I started with?
Use your account balance at the time you place the trade. If your balance has grown to R20 000, 1% is R200. If it has fallen to R16 000, 1% is R160. The rand risk shrinks as the account shrinks, which is the point. It slows the loss without you having to make a separate decision.
2% — do I pick 1% or 2% and keep it forever?
Pick one figure and write it down before you trade. The choice is yours, and nothing in the market tells you which is correct. What matters is that the number does not move because a chart looks good. If you change it mid-week, it was never a rule.
50 pips — where does the stop actually go?
The stop distance comes from the chart, not from the rand risk. You look at where the price would have to move to prove your idea wrong. Only then do you calculate the position size that makes that distance equal your rand risk. If the required size is tiny, the trade is still allowed. If it is huge, you reduce size rather than widen the risk.
R184 — can I round it to R200 for easier maths?
Rounding the rand risk is fine if you round down, never up. R180 on a R18 410 account is slightly under 1%. Rounding up to R200 makes your real risk about 1.09%. Small differences add up over many trades, so it is simpler to keep the exact figure.
20 000 units — is that the same as 0.20 lots?
Not necessarily. A standard lot on USD/ZAR is usually 100 000 units, so 20 000 units would be 0.20 lots at that contract size. But brokers differ. Some quote in different contract sizes or round to the nearest 0.01 lots. Check your platform's specification rather than assuming.
10 losses — does that mean I should stop after 10?
No fixed number of losses tells you to stop. The 1-2% rule is designed so that a losing run does not end your account. What you should watch is whether your risk per trade has stayed constant. If it has crept up after a loss, the rule has already been broken.
The words used on this page
- rand risk
- The amount in rand you have decided you may lose on one trade. It is written down before the trade is placed. It does not change when the chart changes.
- pip
- A small unit of price movement. On USD/ZAR, one pip is usually the fourth decimal place. At 18.4100, a move to 18.4101 is one pip.
- position size
- How many units of the instrument you are buying or selling. It is calculated from your rand risk and your stop distance. It is not chosen first.
- stop distance
- How far the price must move against you before you exit the trade. It is measured in pips. It comes from the chart, not from your account balance.
- drawdown
- The fall in your account balance from its highest point. A run of losses causes drawdown. The 1-2% rule limits how deep it can get.
- FSCA
- The Financial Sector Conduct Authority. It regulates financial services in South Africa. It does not set your risk per trade. That decision is yours.
What to take away
- Choose your rand risk before you look at a chart. On R18 410, 1% is R184 and 2% is R368.
- Position size and stop distance are calculated from that rand risk, not the other way around.
- A run of losses is normal. Risking 2% per trade means ten losses in a row cost about 20% of the account.
- Brokers round sizes, charge spreads and commissions, and quote slightly different prices. Your own figures will differ.