Risk per trade: the 1-2% rule
The peso amount comes before the chart
Open any EUR/USD chart and the first thing you see is price moving. A candle rises, a candle falls, and the eye wants to act. The 1-2% rule asks you to look away from the chart for one minute and write down a peso amount instead. That amount is the most you will lose if the trade goes against you. It is not a target and it is not a hope. It is a limit you set while you are calm, before the chart gives you a reason to break it.
The number comes from the account, not from the setup. If the account holds ₱80,000 and you choose 1%, the number is ₱800. That ₱800 is now fixed for the trade. The chart does not get to change it, and neither does a strong feeling about the next candle. A trader who starts with the chart and works backwards will often pick a stop because it looks tidy, then discover the peso loss is far larger than planned. Starting with the peso amount removes that discovery.
A common objection is that 1% feels too small to matter. Run the arithmetic. Twenty losses at ₱800 each remove ₱16,000 from ₱80,000, leaving ₱64,000. Twenty losses at ₱12,000 each remove ₱240,000, which is more than the account holds. The small number is not there to make trading dull. It is there so that a run of losses leaves an account that can still place the next trade.
How the stop distance and position size follow
Once the peso amount is fixed, the chart decides the stop distance. Suppose one pip on the position you are considering is worth ₱400. Divide ₱800 by ₱400 and you get two pips. That is the maximum stop distance the money allows. Now look at the chart. If the nearest sensible place for a stop is ten pips away, the position is too large for the money. The answer is not to move the stop closer to the entry. The answer is to reduce the position size until ten pips costs ₱800.
This is where the order of decisions matters. Position size is the last thing you calculate, not the first. You already know the peso risk and the pip distance the chart requires. The position size is whatever makes those two numbers meet. On EUR/USD around 1.0850, a smaller position means fewer units of the base currency. The platform will show you the resulting pip value before you send the order. Read it, and check that it matches the number you intended.
A stop placed for arithmetic rather than for the chart will be hit by ordinary movement. If the chart needs ten pips and your money only supports two, the trade is simply too big. Reduce the size until the ten-pip stop fits inside the ₱800. If even the smallest position the platform allows is still too large, the correct action is to skip the trade. Skipping is a decision, not a failure. It keeps the rule intact for the next setup.
What the rule does not cover
The 1-2% rule limits one trade. It does not limit a day, a week or a series of trades that all lose. Three trades at 1% each can lose 3% of the account in an afternoon. That is still within the rule, and it is still a drawdown. Some traders add a daily or weekly limit on top of the per-trade limit. The per-trade rule is the foundation, not the whole building. Write down what happens after two losses in a row, because that is when the rule is tested.
Costs sit outside the risk number unless you include them. Your broker may charge a spread, a commission, or both, and may round the position size to a step the platform allows. The pip value shown on your platform can also differ from a rough calculation because of the conversion rate used for the peso. These details vary between brokers. Check the contract specification for the instrument on your own platform before you rely on any pip value.
The regulator for investment products in the Philippines is the SEC Philippines. Registration with a regulator does not remove market risk, and it does not make a loss refundable. GCash and bank transfer are common ways to move money to and from a trading account, and each method has its own timing and fees. The 1-2% rule is a personal limit. It sits on top of whatever the platform, the payment method and the regulator require, and it is the part you control.
One account, two risk sizes, twenty trades
| Step | Amount | Note |
|---|---|---|
| Account balance | ₱60,000 | the starting deposit, roughly $1,000 at the rate used here |
| Risk per trade, small | ₱600 | 1% of ₱60,000 |
| Risk per trade, large | ₱12,000 | 20% of ₱60,000 |
| Pip value on one standard lot of EUR/USD | about ₱580 | one pip is 10 units of the quote currency; 10 US dollars converted to pesos at the rate used here, and this rate moves |
| Stop distance at ₱600 risk | about 1 pip on one standard lot, or 10 pips on 0.10 lots | ₱600 divided by the pip value of ₱580 gives roughly one pip on a standard lot; the same money spread over a smaller position gives a wider stop |
| Stop distance at ₱12,000 risk | about 20 pips on one standard lot, or 200 pips on 0.10 lots | ₱12,000 divided by ₱580 gives roughly 20 pips on a standard lot |
| Twenty losses at ₱600 | ₱12,000 lost, ₱48,000 left | ₱600 multiplied by 20, taken from ₱60,000 |
| Twenty losses at ₱12,000 | ₱240,000 lost, account gone | ₱12,000 multiplied by 20 is four times the starting balance, so the account cannot survive the run |
Your broker may round the position size, charge a spread or commission on top, and quote a different conversion rate for the pip value. Check the contract specification on your own platform.
Doing it once, step by step
These steps turn the rule into a routine you can repeat before every trade. Do them in order, and do not move to the next step until the current one is written down.
- 01
Write the account balance
Open your platform and note the current balance in pesos. Use the number you see, not the number you remember. If the balance is ₱80,000, write ₱80,000. This is the base for the risk calculation.
- 02
Choose 1% or 2% and calculate the peso risk
Multiply the balance by 0.01 for 1%, or by 0.02 for 2%. On ₱80,000, 1% is ₱800 and 2% is ₱1,600. Write the peso amount beside the balance. This is the most you will lose on the trade.
- 03
Find the pip value for the position size you are considering
On your platform, look up the pip value for EUR/USD at the size you have in mind. It may be shown per pip or per point, and it may change with the position size. Write the figure down. If it is not shown, use the contract specification.
- 04
Divide the peso risk by the pip value
Divide the peso risk by the pip value to get the maximum stop distance. With ₱800 risk and a pip value of ₱400, the maximum is two pips. With a pip value of ₱80, the maximum is ten pips. This is the widest stop the money allows.
- 05
Compare the maximum stop with the chart
Look at the chart and find where a stop would sit if the trade were wrong. Measure that distance in pips. If it is wider than the maximum you calculated, reduce the position size and recalculate. Do not tighten the stop to fit the money.
- 06
Place the order only when the numbers agree
Check that the stop distance on the chart is inside the maximum, and that the pip value matches the size you will send. If both are true, place the order with the stop attached. If not, skip the trade and keep the rule for the next one.
The mistake most people make here
The mistake is to pick the lot size first because it looks exciting, and only then look for a stop that fits the money left. That reverses the order. Decide the peso amount you can lose, then divide it by the pip value to get the stop distance, and only then choose the position size. If the stop the chart needs is wider than your money allows, the answer is a smaller position, not a tighter stop.Check yourself
An account holds ₱80,000 and the rule is 1% risk per trade. How much is at risk?
₱800, because 1% of ₱80,000 is ₱800.
If one pip on the position you are considering is worth ₱400, how many pips can your stop be if you risk ₱800?
Two pips, because ₱800 divided by ₱400 is 2.
Twenty losses in a row at ₱800 each: how much is left from ₱80,000?
₱64,000, because ₱800 multiplied by 20 is ₱16,000, and ₱80,000 minus ₱16,000 is ₱64,000.
Questions that come up next
How do I know what 1% of my account actually is?
Multiply the account balance by 0.01. An account of ₱80,000 gives ₱800, because ₱80,000 multiplied by 0.01 is ₱800. If the balance changes, the number changes with it, so recalculate it before each trade rather than keeping one figure for the month. Some people use 2% instead, which doubles the amount and doubles the speed at which a losing run removes money.
What if the chart needs a stop wider than my peso limit allows?
Reduce the position size until that wider stop costs only the peso amount you set. The stop distance stays where the chart needs it, and the pip value falls because the position is smaller. Never narrow the stop to fit the money, because a stop placed for arithmetic rather than for the chart will be hit by ordinary movement.
Does the 1-2% rule apply to the whole account or to one position?
It applies to one position. If you hold several positions at the same time, the amounts add up, and two positions at 1% each put 2% of the account at risk together. Correlated pairs can move the same way, so the combined loss may arrive at once.
How do I work out the pip value for a position before I send the order?
Your platform shows the pip value for the size you have entered, and you can read it before confirming. The figure varies between brokers, and it also depends on the size and on the conversion rate used. Check the contract specification on your own platform rather than assuming a number from an example.
Can I use a fixed lot size and a fixed stop instead?
You can, but then the peso risk changes as the account balance changes, and it changes with the pip value. A fixed size that risks ₱800 on an ₱80,000 account risks 4% on a ₱20,000 account. The rule is about the proportion, not the size.
What happens to the rule when a trade is already running at a loss?
The limit was set before the trade opened, and the stop is where it was placed. Moving the stop further away increases the loss beyond the amount you decided. Closing early is a choice, but widening the stop is a different decision from the one you made while calm.
The words used on this page
- risk per trade
- The most money you accept losing on one trade if it goes against you. It is chosen from the account balance before the trade is placed.
- pip value
- The money one pip of movement is worth for the position size you hold. It changes with the size and with the conversion rate, and it varies between brokers.
- stop distance
- How far, in pips, the stop sits from the entry price. The chart decides it, and the peso limit decides how large the position can be.
- position size
- The amount of the instrument you buy or sell. It is the last thing you calculate, because it is whatever makes the peso risk and the stop distance meet.
- drawdown
- The fall from a high point in the account to a lower point. A run of losses produces it, and its size depends on how much each loss removed.
- balance
- The money in the account at a given moment. The 1% figure is calculated from it, so it is recalculated as the balance changes.
What to take away
- Choose the peso amount you can lose before you look for an entry.
- The account balance sets that amount, and the chart sets the stop distance.
- Position size is the last calculation, not the first.
- A run of losses leaves an account that can still place the next trade.