How Much Should You Risk on a Trade?

How much should you risk on a trade? This is an important question whether you are long-term investing, swing trading, day trading, or scalping.

Risk is such an important topic that it deserves more detail than we can cover here, but these are the basics and the most important points.

If you are reading, watching, searching, or listening to anyone anywhere and they say the way you limit your risk is simply to limit it to 1% or 2% of your account, that is insane advice if it is the first advice you are hearing.

You need to earn the right to trade that much.

If you are new, if you are not making money, or if you are starting a new strategy, here is what you should start off risking:

Zero.

Nothing.

Period.

You start off paper trading so you can prove that you can make money on paper first.

Here is the simple reason why: what if you cannot make money on paper?

If you cannot make money on paper, risking real money will not solve the problem. It will only make the problem more expensive.

Once you can make money on paper, you move up to very small risk, such as $5 or $10 per trade. Then you can increase your risk as rapidly as you want, but only in small increments and only after successful trading at that current level.

That is how the pros do it.

That is what keeps you safe.

That is your safety net.

Once you have done that, you can trade as aggressively as appropriate. You can shoot for any percentage level you like, within reason, based on your account size, your strategy, and your actual results.

The important point is that risk is earned. You do not start with a percentage just because someone told you that 1% or 2% is the rule. You start by proving that you can make money, then you increase risk only after success at each level.

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