Risk Management · Lesson 4 · Beginner
The Risk Rule (0.5 / 1 / 2 Percent)
You calculate your maximum risk per trade and know the serious range of 0.5 to 2 percent.
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How Much Per Trade
Elder: never risk more than 2 percent of account equity per trade, including slippage and fees. Hite and Kovner never go above 1 percent.
Goodman is even more conservative for crypto, 0.5 to 1 percent, because cryptos crash together. Track recommendation: standard 1 percent.
Set your account and check what 1 percent means in USDT.
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Test yourself
Account 28,000 USD. How much is 2 percent maximum risk per trade?
- 560 USD
- 2,800 USD
- 280 USD
You hold two strongly correlated positions. What risk applies per position?
- 2 percent each, each counts on its own
- Rather 0.5 percent, because they fall together
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The key points at a glance
- Standard 1 percent, hard maximum 2 percent, 0.5 percent for correlated positions.
- Risk always relative to capital, never a fixed number of units.
- Fees and slippage belong inside the risk calculation.
Deep dive
0.5, 1 or 2 percent: where these numbers come from
The range comes from traders who have survived over decades. Elder draws the hard ceiling at 2 percent of equity per trade, including slippage and fees. Hite and Kovner never go above 1 percent.
Hite's trick: 'By risking only 1 percent, I am indifferent to any individual trade.' For crypto the more conservative corner is smarter, because cryptos crash in tight correlation.
- Standard 1 percent, 2 percent as an absolute maximum.
- Down to 0.5 percent across several correlated positions.
- On a 28,000 USD account, 2 percent is 560 USD, 1 percent is 280 USD.
Risk relative to capital, never as a fixed number of units
The most common silent mistake is trading a fixed number of units or a fixed USDT amount. Hite: anyone who draws down capital but keeps the contract count quickly turns 1 percent into 10 percent. Only the ratio matters.
Your percentage stays constant, the USDT amount moves with the account. After losses your risk shrinks automatically, after gains it grows. This feedback loop is a protective mechanism.
The beginner mistake: forgetting fees and slippage
The 2 percent is a gross limit, not the raw distance from entry to stop. Slippage and commissions belong in the budget. On a 20 USD trade they can eat up to 50 percent of the gross profit combined.
Slippage does not scale with size the way a percentage fee does, it hits big positions harder in absolute terms. Calculate conservatively and round the position size down rather than up.
Sources: Elder, Schwager, Murphy, Goodman
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