How much should I risk on one trade?
Risk per trade is the slice of your account you accept losing if the trade hits its stop. You choose it before the entry, and the position size is computed from it: the farther the stop, the smaller the size, so the money at risk stays the same.
What it is
Risk per trade is a number you decide before you enter: the fraction of your equity you are willing to lose if this trade turns out wrong. The position size follows from it and from the stop distance. Move the stop further away and the size shrinks; the amount you can lose does not change.
Why it matters
Most traders obsess over the entry. The thing that actually decides their results is how much they put on each trade: two traders with identical entries and exits can end far apart purely because of sizing. In BuildTrade™ the order ticket sizes the order from this number, not the other way round, and the price you enter at barely matters by comparison.
What the research says
The central argument of the position-sizing literature is that “how much” matters more than “where”. Traders given the same signals finish with very different accounts because of the fraction they risk, and a run of ordinary losses at a large fraction is enough to end an account. No text hands out a percentage. The advice is to pick one that lets you survive your worst likely losing streak, and to decide it before the trade, never during.
On a paper order, set the stop twice as far away and watch the size halve while the money at risk stays put.
Trade Your Way to Financial Freedom, Van K. Tharp (2007).
BuildTrade™ is independent of, and not endorsed by, the authors or publishers of these books.