Lose 10% of an account and you need 11.1% to get back. Lose 30% and you need 42.9%. Lose 50% and you need to double. The gain is always measured against the smaller balance, so the deeper the hole, the steeper the wall. This is not a motivational point. It is the reason professional risk limits are set at levels that feel absurdly small to a new trader, and why the same trader considers them obvious two years later.
| Drawdown from peak | Gain required to recover | Consecutive 1% losses to get there |
|---|---|---|
| 5% | 5.3% | about 5 |
| 10% | 11.1% | about 11 |
| 20% | 25.0% | about 22 |
| 30% | 42.9% | about 36 |
| 50% | 100.0% | about 69 |
Read the third column carefully. At 1% of equity per trade it takes something like sixty-nine straight losses to halve an account. At 10% per trade it takes about seven. The strategy has not changed between those two traders. Only the fraction has, and the fraction is the part you actually control.
Size from the stop, never from the lot box
The order in which most people place a trade is backwards. They pick a lot size out of habit, then place a stop wherever the chart suggests, and accept whatever loss that combination produces. Reverse it. Decide the money you are prepared to lose on this idea, mark the price at which the idea is wrong, and let those two numbers determine the size.
The arithmetic is one line. Position size equals risk amount divided by stop distance in pips, divided by the value of one pip per lot. A wide stop therefore forces a smaller position and a tight stop allows a larger one, so risk stays constant while the market's volatility does not. Our guide to lots and position sizes works through the conversions for the different contract sizes, and a position size calculator removes the arithmetic errors that happen at 3pm.
The trap in this method is the tight stop. If you shrink the stop to justify a bigger position, you have not reduced risk, you have raised the probability of being stopped out on noise and then watching the trade work without you. Stop placement is a question about market structure and where the idea is invalidated, and the size follows from that answer rather than the other way round.
Fixed fractional beats fixed lots
Fixed fractional risk means the amount at stake is a constant percentage of current equity, so it falls automatically in a drawdown and rises as the account grows. That single property is what keeps a bad run from becoming terminal. Ten losses in a row at a fixed fraction leave an account bruised. Ten losses at a fixed lot size on a shrinking balance leave it in a place the arithmetic above describes.
The cost of fixed fractional sizing is slower recovery, because after a drawdown you are trading smaller exactly when the market may be offering the setups you want. Traders who dislike that trade-off sometimes step size back up on a fixed schedule rather than instantly. What they should not do is step it up because they feel due for a win.
Trading leveraged products carries a high risk of loss. No sizing rule makes a losing strategy profitable. Position sizing controls how long you survive while you find out whether the strategy has an edge at all.
Your five positions are probably one position
A trader long EURUSD, long GBPUSD, long AUDUSD and short USDCHF at 1% each does not have 4% of risk spread across four ideas. They have roughly one idea, short dollar, expressed four times, and a dollar rally hits all four together. Correlation is the quiet way that carefully sized books blow past their intended risk.
The practical fix is a portfolio cap alongside the per-trade cap. Decide the maximum you are prepared to lose if everything currently open goes against you at once, and count correlated positions as fractions of a single exposure rather than as separate bets. Our piece on currency correlations covers which pairs move together and how those relationships change during risk-off episodes, which is precisely when they matter and precisely when they tighten.
Daily and weekly stops
A per-trade limit does nothing against tilt, because tilt does not exceed the per-trade limit. It takes fourteen consecutive correctly sized trades in the ninety minutes after a painful loss. The control for that behaviour is a hard daily loss limit, after which the platform is closed for the day, and a weekly limit that ends the week the same way.
Firms institutionalise this. Every prop firm applies a daily loss rule and a maximum drawdown rule, and the entire evaluation model rests on them, which is why anyone trading a funded account should know exactly whether their firm measures from the previous day's balance or from peak equity. The difference decides whether a floating loss counts. Read how drawdown is measured before you assume, because the two definitions produce different breach points on the same trade.
What the stop does not protect against
A stop loss is an instruction to close at market once a price prints, so the fill is whatever liquidity exists at that moment. On a weekend gap or a central bank surprise, that can be well beyond the level you set. Guaranteed stops are offered by some brokers for an explicit fee, and retail clients in some jurisdictions have negative balance protection that caps the account outcome, but neither is the same as the ordinary stop most traders rely on.
Which brings the sizing question back around. If the worst realistic slippage on your instrument is several times the stop distance in an event window, then the position that risks 1% under normal conditions risks considerably more across a data release or an unhedged weekend. Sizing for the event rather than for the average is the difference between a bad day and a rebuild, and it is why serious traders reduce exposure into scheduled volatility instead of hoping the fill is clean.
"Nobody blows up from one bad trade. They blow up from one bad trade, then a bigger one to fix it, then a third with no stop because the first two were unlucky."
— Alex Onta, Executive Director, SINGUARD
Key Takeaways
- Recovery is asymmetric: a 30% drawdown needs a 42.9% gain and a 50% drawdown needs a 100% gain, so shallow losses are worth defending hard.
- Decide the risk amount and the invalidation price first, then let position size fall out of the arithmetic instead of choosing a lot size by habit.
- Correlated positions are one exposure wearing several tickets, so cap total open risk as well as risk per trade.
- A stop is filled at market, not at your level, so gaps and news windows deserve smaller size rather than more faith in the order.
Frequently Asked Questions
How much should I risk per trade?
There is no correct number, and nobody can set it for you. What the arithmetic shows is that the smaller the fraction, the longer a strategy survives a bad run, because losses compound downward exactly as gains compound upward. Many traders work in fractions of a percent of equity per position and size the position from the stop distance rather than picking a lot size first.
Why does a 50 percent loss need a 100 percent gain to recover?
Because the gain is measured against the reduced balance. Losing half of 10,000 leaves 5,000, and getting back to 10,000 from 5,000 means doubling. The asymmetry gets worse the deeper the drawdown goes, which is the practical reason to cap losses long before they reach that depth.
Do stop losses guarantee my maximum loss?
No. A stop is an instruction to close at market once a price is reached, so in a fast market or over a weekend gap the fill can be materially worse than the stop level. Guaranteed stops exist at some brokers for a fee, and negative balance protection limits the account outcome in some jurisdictions, but an ordinary stop only limits loss under normal liquidity.