The 1% rule uses 1% of a defined account value as a planned loss budget for one trade. It is a sizing convention, not a guarantee that the trade can lose only that amount or that following it produces growth.

Loss Budget Is Not Position Value

For an illustrative $15,000 account, 1% is $150. A share entry at $50 and stop trigger at $47 gives a $3 price distance. Dividing $150 by $3 produces 50 shares before costs and execution allowance. Buying 50 shares costs $2,500, so the position value and planned price loss are different quantities.

Using all $150 for price distance leaves no room for fees or an adverse stop fill. A stop does not define every possible loss: it may execute beyond its trigger, and a disruption can delay execution. See FINRA's stop-order explanation.

What Repeated Percentage Losses Do

If each loss removes exactly a fraction of the remaining account, the balance after ten losses is (1 − fraction)^10 of its starting value.

Fraction lost each time Remaining after ten losses
1% 90.44%
2% 81.71%
5% 59.87%
10% 34.87%
20% 10.74%

This illustration excludes extra costs and does not estimate the likelihood of that sequence. A 9.56% drawdown at 1% sizing still matters. Reaching a loss or review limit is a reason to pause, not a command to keep trading until an edge appears.

Check Contract Units Before Rounding

Suppose a hypothetical contract is worth $50 per point and the stop distance is eight points. Price risk is $400 per contract, not $200. A $250 budget therefore does not accommodate even one contract before costs. Rounding up would violate the budget; a smaller permitted instrument or no trade are alternatives.

For any real instrument, verify the actual contract specification. Our position-sizing guide develops the calculation across unit types.

Account Rules Can Be Tighter

Three trades each budgeted at 1% do not establish a guaranteed 3% daily maximum. Open P&L, execution differences, costs and account-specific reset rules can change the result. An evaluation's nominal account size may be simulated and its permitted loss allowance much smaller.

Use remaining drawdown headroom and aggregate open exposure when assessing another trade. Do not assume an industry-wide daily-loss percentage or treat prop evaluations as a way to eliminate personal fee risk.

There is no statistical rule saying a 100-trade sample or a 60% win rate justifies increasing risk. Win rate without payoff and costs does not establish profitability. Choose a budget from the actual uncertainty and constraints; it can be below 1% or zero.

Risk Disclaimer: Trading involves substantial risk of loss. Past performance is not indicative of future results. See our full risk disclaimer.