Forex glossary
1% Rule
The 1% rule sets a planned trade-loss budget at 1% of a stated capital base, such as equity. Size follows from exit distance, price-move value and costs. An ordinary stop can fill worse than planned and concurrent positions combine risk; the rule guarantees neither a loss cap nor survival.
Illustrative example
How does it work in practice?
On a hypothetical account with equity of 10,000 PLN, 1% is 100 PLN. Assuming a loss of 2 PLN per unit, the budget permits 50 units before costs, slippage and volume restrictions.
A case to work through
Two different amounts
Model: equity is 8,000 USD, loss budget 1%, and the position requires 400 USD margin.
- Planned loss is 80 USD.
- The 400 USD margin is not a substitute for the 80 USD budget.
What follows? Check both the loss budget and available margin.
Example boundary: A gap or slippage can exceed the planned loss.
A useful distinction
1% Rule / Margin (deposit margin)
Margin secures a contract; the 1% rule sets a chosen loss budget.
Check your understanding
Separate planned loss from required margin.
Show the answer and explanation
120 USD
12,000 × 0.01 = 120 USD.
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Related terms
Sources and documentation
- CME Group: Proper Position Size
The lesson links planned position size to the risk budget, stop distance and the contract's monetary value per price increment.
Document read: - MetaTrader 5: basic trading principles
Orders, deals and positions; FOK, IOC and partial-filling policies.
Document read:
The example illustrates the mechanism. Check current account conditions and instrument specifications with the provider.