Two traders both say they follow the 1% rule. The first has a 20 pip stop on EURUSD and sizes so that 20 pips equals 1% of equity. The second has a 90 pip stop on gold and sizes so that 90 pips equals 1% of equity. Their lot sizes differ by a wide margin, and that is the entire point. Fixed fractional sizing holds the money at risk constant and lets the volume float.
The failure mode is not the formula. It is what people do around it: three correlated trades open at once, a stop moved after entry, a percentage taken on balance while the account carries floating losses. Each of those quietly turns a 1% rule into a 3% or 4% rule without anyone deciding to.
The formula, and the three inputs it needs
Risk amount equals account equity multiplied by the fraction. Position size equals risk amount divided by the stop distance in currency terms per unit traded. On a 10,000 account at 1%, the risk amount is 100. If the stop sits 25 pips away and a pip is worth 10 per standard lot, the arithmetic gives 100 divided by 250, which is 0.4 lots.
Three inputs decide everything. Equity, not balance. The fraction, chosen once and written into a trading plan rather than picked per trade. And the stop distance, which has to come from the chart before the size is calculated, never after. The order matters. A trader who picks the lot first and then hunts for a stop that fits it has inverted the method and will end up with stops parked inside noise.
Equity rather than balance is the part people skip. If you hold two open positions showing a combined floating loss, your balance still reads the old number while your real capital is lower. Sizing off balance means every new trade is slightly too large exactly when the account is under pressure. Read what drawdown actually measures before deciding which figure your platform is showing you.
Why the size shrinks on the way down, and grows on the way up
The percentage is fixed, so the money is not. After a run of losses the account is smaller, the 1% is smaller, and the lot size falls with it. That built-in deceleration is the reason fixed fractional sizing survives losing streaks that a fixed lot size would not. Ten consecutive losses at 1% of a shrinking equity costs roughly 9.6% of the account. Ten losses at a fixed lot sized for the starting balance costs a flat 10% and hurts more with each one because the denominator has moved.
The same mechanism works upward. Gains raise the base, the next 1% is worth more, and the account grows geometrically rather than in a straight line. That is compounding doing its work, and it is the honest argument for the method. It is also the reason nobody should re-size after every single trade on a small account: rounding to the nearest 0.01 lot makes tiny equity changes meaningless. Re-size daily, or when equity moves by a meaningful step, and leave it alone in between.
Correlation is the leak
The 1% rule governs one trade. It says nothing about the portfolio. Long EURUSD, long GBPUSD and short USDCHF at 1% each is one dollar bet at 3%, because those three instruments move together most of the time. The same applies to a long gold position alongside long silver, or three index CFDs on the same session.
The practical fix is a second budget sitting above the first: a cap on total open risk, and a cap on risk per correlated cluster. Something like 1% per trade, 2% per currency or theme, 4% or 5% across the whole book. The numbers are yours to set, but the structure has to exist, otherwise the rule only protects you on days when you happen to have one position on. Currency correlations shift with the regime, so a pair that was independent last quarter may not be this quarter.
A stop that gets widened after entry is not a stop. It converts a measured 1% risk into an unknown one, and it is the single most common way a disciplined sizing model gets destroyed in one afternoon.
Choosing the fraction
One percent is a convention, not a law. What sets the number is the strategy's loss clustering and the trader's own tolerance for a flat stretch. A method that takes many small losses waiting for a few large winners will produce longer losing runs than a mean reversion system with a high hit rate, and it needs a smaller fraction to keep the equity curve inside a range the trader can actually sit through.
Work backwards from the drawdown you are willing to accept. If a 20% drawdown would make you abandon the method, and testing suggests the strategy can produce a run of twelve losses, then a fraction near 1.5% already puts you at the edge before any correlation is added. Half a percent is not timid on a strategy with fat tails. The Kelly criterion gives an upper bound on what is mathematically defensible, and almost everyone should trade well below it.
Prop firm traders have a harder constraint. A daily loss limit and a maximum drawdown limit are hard walls, and the sizing fraction has to be set so a normal losing day does not touch them. Passing an evaluation is mostly a sizing problem dressed up as a strategy problem.
Making the platform do it
Sizing by hand at the moment of entry is where errors happen: a decimal in the wrong place, the wrong pip value for a cross, a lot size copied from the last trade. Any decent terminal should show the money at risk on the order ticket before submission, calculated from the stop you have drawn. On eTrader the risk figure updates as the stop line is dragged, which removes the mental arithmetic entirely and makes an oversized order obvious rather than plausible.
If your platform does not show it, a position size calculator next to the chart is the minimum. Write the risk amount down before the trade opens. If the number on the ticket disagrees with the number you wrote, cancel the order and start again.
"If you cannot say what a losing trade costs you before you click, you are not sizing. You are guessing with a calculator open."
— Roman Onta, Executive Director, SINGUARD
Key Takeaways
- Fixed fractional sizing holds the money at risk constant and lets lot size float with the stop distance, so the stop must be chosen before the size.
- Size off equity, not balance, otherwise floating losses make every new position slightly too large.
- The 1% rule governs one trade only. Add a cap on total open risk and on each correlated cluster.
- Set the fraction from the drawdown you can sit through, then have the platform show the risk in money on the ticket.
Frequently Asked Questions
Is the 1 percent rule 1 percent of balance or of equity?
Equity, meaning balance adjusted for open floating profit and loss. Using balance while positions are underwater sizes every new trade too large at the worst moment.
Should I recalculate my position size after every trade?
On a small account, no. Rounding to the nearest 0.01 lot makes tiny equity changes disappear anyway. Recalculating daily, or after a meaningful move in equity, is enough.
Does fixed fractional sizing work with a fixed stop distance?
Yes, and it becomes simpler, because the lot size then changes only with equity. The method still protects you through losing runs by shrinking size as the account falls.
About the Author
Roman Onta is an Executive Director at SINGUARD. He builds the Prop Firm CRM, the Broker CRM, Scalegram and CopySignals side by side with his brother Alex Onta, and he helped on the design of eTrader, the division Alex built and leads. His ground is worldwide payment processing, AML compliance and the corporate structures brokers are built on, work the two of them carry together, shaped by executive roles in the UAE and international corporates. He lives and works in Dubai for most of the year. Meet the executive duo leading Singuard's five divisions.