Position Sizing: The 1% Rule Explained in Practice
Jan DreherJune 20268 min readMost beginners choose their position size by feel: brave today, cautious tomorrow, all in the day after because the setup looks so good. The result is an account whose fate hangs on a single trade. The 1% rule ends that.
The rule
You risk at most 1 percent of your account per trade. Risking here does not mean position size, but the amount you lose when your stop-loss triggers. That is the crucial difference many people overlook.
The formula
Position size in USDT equals risk in USDT divided by stop distance in percent. Example: account 1,000 USDT, risk 1 percent, so 10 USDT. Your stop sits 4 percent below the entry. Calculation: 10 divided by 0.04 gives 250 USDT position size. If the stop hits, you lose exactly 10 USDT. No more.
- Tight stop (2 percent): 10 / 0.02 = 500 USDT position
- Medium stop (4 percent): 10 / 0.04 = 250 USDT position
- Wide stop (8 percent): 10 / 0.08 = 125 USDT position
Note: the wider the stop, the smaller the position. That feels wrong at first, but it is the core of the rule. Your loss stays constant at 10 USDT, no matter how volatile the setup is.
Why 1 percent and not 5?
Because losing streaks are normal and the math works against big stakes. Even a good strategy with a 50 percent hit rate regularly produces 6, 8, even 10 losers in a row, that is not a question of if, only when. What matters is what such a streak does to the account:
- 1 percent risk: 10 losers in a row cost 9.6 percent of the account. Annoying, irrelevant for survival.
- 5 percent risk: the same streak costs 40 percent. From here you need 67 percent return to get back to zero.
- 10 percent risk: 65 percent loss. The account is practically dead, psychologically anyway.
On top comes the mind: risk 1 percent per trade and you can shrug off a stop-out and trade the next one cleanly. Risk 10 percent and from the second loser you no longer trade your strategy, you trade your fear.
The most common objection: this way I never get anywhere
True for the first week, and that is exactly the point. The 1% rule does not limit your profit, it limits your ruin. Profits scale through the hit rate, the risk-reward ratio, and automatically with a growing account, because 1 percent of a grown account is more than 1 percent of the starting account. Take the shortcut through bigger stakes and you speed up both, and the losing streak is sure to come.
And leverage?
Leverage does not appear in the formula, and that is no oversight. It only determines how much margin you post for the 250 USDT: at 10x that is 25 USDT, at 5x it is 50 USDT. Your risk stays 10 USDT in both cases. Leverage only becomes dangerous when it pushes the liquidation before your stop. That is exactly what our calculator warns about.
With the 1% rule you can be wrong 20 times in a row and still have over 80 percent of your account. Without it, one bad week is enough.
So you do not have to calculate on every trade, the platform has a free position size calculator: enter risk and stop, read off the size, done. It also warns you when your leverage would put the liquidation before the stop.
Frequently asked questions
Does the 1% rule apply to small accounts too?
Especially to small accounts, because they survive mistakes worst of all. On a 500 USDT account, 1 percent is just 5 USDT risk per trade, and thanks to leverage the position sizes stay tradable anyway. The temptation to risk more on small accounts to grow faster is exactly the mechanism that keeps small accounts small or wipes them out.
Is 2 percent risk okay too?
2 percent is the upper limit of what risk literature still calls defensible, a 10-loser streak then already costs 18 percent of the account. What makes sense is an honest self-assessment: beginners do better with 0.5 to 1 percent, because their hit rate is still unproven. You can always increase it once 100 documented trades prove your strategy.
Is the risk the margin or the possible loss?
The possible loss at the stop, never the margin. The margin is just posted capital and says nothing about what you lose on a stop-out. Example: a 250 USDT position with a 4 percent stop risks 10 USDT, whether it is backed by 25 USDT margin (10x) or 50 USDT margin (5x).
How do I handle the rule with multiple open positions?
The total risk of all open positions together should have a second limit, common values are 3 to 5 percent. Three positions at 1 percent each are therefore the upper end, especially when they are correlated: BTC, ETH and SOL long is practically a single trade in triplicate and behaves that way in a sell-off too.
Read the theory? Practice it with play money before it costs you real money.
Over 100 free lessons, a simulator with real live prices and the position size calculator. No subscription, no payment details.
Start for freeJan Dreher is the founder of learn-daytrading.com and builds tools for crypto traders, including the simulator with real live prices from Binance and Bybit and the platform's position size calculator. Here he writes about the craft behind trading: risk, position size and the math most traders fail at. Every number in his articles is verifiable, every recommendation is justified.