Position sizing: the 1% rule explained with worked examples
Also in: FR Français · ES Español · DE Deutsch
How much should you buy? The answer depends on your stop-loss, not your conviction. Step-by-step method, drawdown table and common mistakes.
- Risk a small, fixed percentage of capital per trade: typically 0.5% to 2%.
- Size = (capital × risk %) ÷ distance between entry and stop.
- Place the stop on the chart first, then compute the size — never the other way round.
- A 50% loss needs a 100% gain just to break even.
Most trading accounts do not die from bad analysis but from bad position sizing. A good idea traded too big becomes a gamble; an average idea traded small stays a useful experiment. The 1% rule is the simplest and most widely used safeguard professionals rely on to avoid ruin.
The principle
The rule is simple: on any single trade, you never accept to lose more than 1% of your capital if your stop-loss is hit. With $10,000, the planned maximum loss is $100. Note this does not mean investing 1% of your capital: the position itself can be much larger, as long as the loss at the stop is limited to 1%.
The exact figure varies: 0.25% to 0.5% for very active strategies, up to 2% for experienced, infrequent traders. What matters is that it stays fixed and small.
The calculation, step by step
Bitcoin example with 10,000 USDT of capital:
- Maximum risk: 10,000 × 1% = 100 USDT.
- Stop-loss: you buy at 60,000 and place your stop below support at 59,100. Distance = 900 USDT per BTC.
- Size: 100 ÷ 900 = 0.111 BTC, roughly a 6,667 USDT position.
If the stop is hit you lose 0.111 × 900 = 100 USDT, exactly 1%. Had your stop been twice as wide (1,800), the size would be halved (0.056 BTC). The further the stop, the smaller the position: that is what keeps the loss constant whatever the volatility.
Do not forget fees: at 0.1% on entry and exit, a round trip on 6,667 USDT costs about 13 USDT. To respect 1% strictly, include them in your maximum loss.
Why 1%? The maths of drawdowns
Losses and gains are not symmetrical. After losing X%, you need a bigger gain to get back to where you started:
| Capital lost | Gain needed to break even |
|---|---|
| −10% | +11.1% |
| −20% | +25% |
| −30% | +42.9% |
| −50% | +100% |
| −75% | +300% |
At 1% risk per trade, a streak of 10 consecutive losses — rare but possible — costs only about 9.6% of capital. At 10% per trade, the same streak would cost 65%, and you would need to nearly triple what is left to recover. Small risk per trade is what keeps you in the game long enough for your statistical edge to play out.
Leverage does not change the rule
Leverage changes the margin you lock up, not the risk. Open the same 0.111 BTC position at 5× and you only tie up 1,333 USDT of margin, but the loss at the stop is still 100 USDT. The danger of leverage is that it allows far oversized positions, and that liquidation can come before your stop if the stop is badly placed. We cover the mechanics in our article on leverage and liquidation.
Classic mistakes
- Choosing the size first, then putting the stop wherever “it doesn’t hurt too much”. The stop belongs where the market invalidates your idea, not where your wallet does.
- Sizing up after a loss to “win it back”. It is the most efficient accelerator of ruin.
- Stacking correlated positions: being long BTC, ETH and SOL at the same time with 1% each often means risking close to 3% on a single idea — “crypto goes up”.
- Forgetting to recompute: 1% is taken on current capital. After a drawdown positions shrink automatically; after gains, they grow.
Put it into practice
The Bullmarket simulator has a built-in calculator: enter your entry, your stop and the percentage of capital to risk, and the quantity is computed for you. It is the best way to build the habit before risking real money.
Educational content only — not investment advice. Trading involves the risk of losing capital.