What should your recommended risk per trade be?
Great question.
Aim to keep your risk per trade below 2%.
But even so, that might be a bit excessive. especially if you are a beginner at trading forex.
This crucial example will help you understand the difference between risking a little amount of your cash on each trade and risking a larger percentage.
Risking 2% vs 10% per Trade
| TRADE # | TOTAL ACCOUNT | 2% RISK ON EACH TRADE | TRADE # | TOTAL ACCOUNT | 10% RISK ON EACH TRADE |
|---|---|---|---|---|---|
| 1 | $20,000 | $400 | 1 | $20,000 | $2,000 |
| 2 | $19,600 | $392 | 2 | $18,000 | $1,800 |
| 3 | $19,208 | $384 | 3 | $16,200 | $1,620 |
| 4 | $18,824 | $376 | 4 | $14,580 | $1,458 |
| 5 | $18,447 | $369 | 5 | $13,122 | $1,312 |
| 6 | $18,078 | $362 | 6 | $11,810 | $1,181 |
| 7 | $17,717 | $354 | 7 | $10,629 | $1,063 |
| 8 | $17,363 | $347 | 8 | $9,566 | $957 |
| 9 | $17,015 | $340 | 9 | $8,609 | $861 |
| 10 | $16,675 | $333 | 10 | $7,748 | $775 |
| 11 | $16,341 | $327 | 11 | $6,974 | $697 |
| 12 | $16,015 | $320 | 12 | $6,276 | $628 |
| 13 | $15,694 | $314 | 13 | $5,649 | $565 |
| 14 | $15,380 | $308 | 14 | $5,084 | $508 |
| 15 | $15,073 | $301 | 15 | $4,575 | $458 |
| 16 | $14,771 | $295 | 16 | $4,118 | $412 |
| 17 | $14,476 | $290 | 17 | $3,706 | $371 |
| 18 | $14,186 | $284 | 18 | $3,335 | $334 |
| 19 | $13,903 | $278 | 19 | $3,002 | $300 |
You can see the significant difference between putting 2% of your account at danger and putting 10% of your account at risk in a single trade.
If you were to experience a losing run and lose just 19 deals, your initial balance of $20,000 would have been reduced to just $3,002 if you were to take a 10% risk on each trade.
More than 85% of your account would have been lost!
simply 30% of your total account was lost if you had simply staked 2% of your total, or $13,903.
Obviously, losing 19 consecutive trades is the last thing we want to happen, but even if you simply lost 5 consecutive trades, consider the difference between risking 2% and 10%.
You would still have $18,447 even with a 2% risk.
Taking a 10% risk would only net you $13,122.
Even if you had lost every single deal and merely put 2% of your account at risk, you would still have had less money than that.
This example serves to highlight the need to build up your risk management policies in a way that ensures you will have sufficient cash to continue playing the game even if there is a drawdown phase.
Can you picture losing 85% of your account balance?
To return to breakeven, you would need to earn 566% of what is left over.
You DO NOT want to be in that situation, believe us.
“What Do I Have to Do to Get Back to Breakeven?”
| LOSS OF CAPITAL | % REQUIRED TO GET BACK TO BREAKEVEN |
|---|---|
| 10% | 11% |
| 20% | 25% |
| 30% | 43% |
| 40% | 67% |
| 50% | 100% |
| 60% | 150% |
| 70% | 233% |
| 80% | 400% |
| 90% | 900% |
You can see that it gets more difficult to restore your account to its former size the more money you lose.
You should take every precaution to PROTECT your account because of this.
By now, we hope it has become ingrained in your mind that you should only risk a little portion of your account per trade in order to weather losing streaks and prevent a significant account depletion.
Keep in mind that you want to be the casino. NOT the bettor!
