Level 3 — Becoming a Better Trader
Position sizing
5 minute read
Risk is not the purchase amount
Illustrative example · not live data
£5,000 account
1% planned risk = £50
5% stop distance → £1,000
Position sizing means deciding how much money to put into each trade. Get this wrong and nothing else matters — a few oversized losses can wipe out an account.
A common professional rule: risk no more than 1–2% of your total money on any single trade. If you have £5,000, that means a maximum loss of £50–£100 per trade.
Note that 'risk' means the amount you'd lose if your stop-loss is hit — not the total amount you invest. With a stop-loss 5% below your entry, risking £50 means buying £1,000 worth.
With 1% risk per trade, you could lose ten trades in a row and still have 90% of your money. That staying power is what lets you survive long enough to learn.
Key points to remember
- Never risk more than 1–2% per trade
- Risk = what you lose if your stop is hit
- Small risks let you survive losing streaks
- Survival comes before profits