The 1% Rule: How to Calculate Position Size in Forex, Gold and Crypto

Most traders who blow their accounts don’t fail because of bad entries. They fail because their position size is too big. The 1% rule is the simplest, most effective defence: on any single trade, you never lose more than 1% of your account. It sounds almost too simple — and that is exactly why it works. It removes the biggest decision that emotions usually make for you.

This guide explains why 1% is the right starting point, gives you a single formula that works in every market, and walks you through worked examples for EUR/USD, gold and Bitcoin. You will also learn how to set daily and weekly limits, how to handle correlated trades, and the position-sizing mistakes that quietly destroy accounts.

Why 1%? The maths of losing streaks

Even a strategy that wins 55% of the time will regularly hit 6, 8 or even 10 losses in a row. It is not bad luck; it is statistics. Here is what that does to your account at different risk levels:

At 1% risk, a terrible streak is uncomfortable. At 10% risk, it is almost impossible to recover from. Notice the last column: losses and recoveries are not symmetrical. A 50% loss needs a 100% gain just to break even. Protecting capital is therefore more important than chasing returns.

The position-size formula

Three inputs, always in this order:

1. Decide your risk in money: account × 1%.
2. Find your stop where the setup is invalidated — beyond a support or resistance zone or the wick of a rejection candle.
3. Calculate the size that makes the stop distance equal to your money risk.

Never the other way around. If you choose the lot size first and then squeeze the stop to fit, you are letting your ego set the stop instead of the market.

Worked example 1: EUR/USD

• Account: $5,000 → 1% risk = $50
• Stop loss: 25 pips
• Value of 1 pip for 1 standard lot on EUR/USD ≈ $10

Size = $50 ÷ (25 × $10) = 0.20 lots. If the stop is hit, you lose $50. If your target is 50 pips away, you make $100 — a 1:2 trade.

Worked example 2: Gold (XAU/USD)

• Account: $5,000 → 1% risk = $50
• Stop loss: $8 below entry (e.g. entry 2,320, SL 2,312)
• On most brokers, 1 lot = 100 oz, so a $1 move = $100 per lot

Size = $50 ÷ (8 × $100) = 0.06 lots. Contract sizes can differ between brokers — always check the contract specification. Gold moves several times more than EUR/USD in a typical day, which is why the lot size is much smaller for the same risk. More in our gold trading guide.

Worked example 3: Bitcoin

• Account: $5,000 → 1% risk = $50
• Entry $100,000, stop $98,500 → stop distance $1,500 per BTC

Size = $50 ÷ $1,500 = 0.033 BTC (about $3,300 notional). Notice that leverage doesn’t appear in the formula — it only decides how much margin is locked. That idea is explained in leverage and margin explained.

Risk-to-reward: the other half of the equation

Position size controls how much you lose. Risk-to-reward controls how much you need to win. If you risk 1% to make 2% (1:2), you only need to win about 34% of trades to break even before costs. At 1:3, about 25%.

Combining small risk with good reward is how traders survive long enough for their edge to show. If the nearest opposing level does not allow at least 1:2, consider skipping the trade.

Daily and weekly limits

• Daily stop: stop trading after −3% in a day.
• Weekly stop: reduce size by half after −6% in a week.
• Max open risk: keep total risk across all open trades below 3–4%.
• Correlation: two trades on EUR/USD and GBP/USD in the same direction count as one larger position.

These limits protect you on the days when you are tired, frustrated or simply out of sync with the market — the days when most large losses happen. They work hand in hand with the habits in trading psychology.

Scaling up the right way

Because the 1% rule is percentage-based, your position size grows automatically as your account grows. Resist the urge to jump from 1% to 3% after a good month. A better approach: review every 50 trades, and only consider moving from 1% to 1.5% if your journal shows consistent rule-following and a positive expectancy.

Common position-sizing mistakes

1. Using the same lot size for every trade regardless of stop distance.
2. Moving the stop further away once the trade goes against you.
3. Doubling size to “win back” a loss.
4. Ignoring spread and commission on very tight stops.
5. Forgetting that a weekend gap can skip past your stop.
6. Calculating size from free margin instead of from risk.

Position sizing for prop-firm and funded accounts

If you trade a funded or prop-firm challenge, the rules are usually stricter: a daily loss limit around 4–5% and a maximum drawdown around 8–10% are common. Risking 1% per trade still works well, but many traders drop to 0.5% because two or three bad days can end the challenge. Calculate your size in exactly the same way — the formula does not change, only the percentage.

A simple risk plan you can copy

1. Risk per trade: 1% (0.5% after a 6% drawdown).
2. Maximum open risk: 3% across all positions.
3. Daily stop: −3%. Weekly stop: −6% (halve size).
4. Minimum reward-to-risk: 1:2.
5. Review every 50 trades before changing anything.

Print it, keep it next to your screen, and treat it as non-negotiable. Most of trading success is simply following a plan like this for long enough.

Using a position-size calculator

You do not need to do this maths by hand every time. Most platforms and many free websites offer a position-size calculator: you enter your account balance, risk percentage, stop distance and instrument, and it returns the lot size. Use one until the process becomes second nature — but understand the formula above, so you can spot when a calculator uses the wrong contract size or account currency. Some traders also keep a small table next to their screen with pre-calculated sizes for common stop distances on their main instruments. It turns a calculation into a two-second lookup and removes the temptation to round up “just this once”.

Examples are simplified for education. Check your broker’s contract specifications. Trading involves risk of loss.