Risk Per Trade
The predefined percentage or fixed monetary amount of total account capital assigned as the maximum acceptable loss for a single position.
Plain-English Meaning
Risk per trade answers the question: "If this trade completely fails and hits my stop loss, exactly how much of my account will I lose?" Disciplined traders keep this number low and consistent.
Why It Matters
Standardizing risk per trade is the foundation of longevity in the markets. By risking a small, fixed percentage (like 1% or 2%), a trader can survive a streak of multiple losing trades without severely damaging their core capital.
Simple Example
If your account balance is $5,000 and your risk per trade is set to 1%, you will position your trade size so that your maximum loss at the Stop Loss level is exactly $50.
This educational example uses selected assumptions for reference calculation purposes. Real conditions may vary by broker, exchange, or instrument.
Beginner Mistake
Varying the risk per trade randomly based on "confidence." Risking 1% on some trades and 10% on "sure things" often results in the large losses completely wiping out the slow, steady gains.