Smart risk management: why the 1% rule works in Forex and CFD trading
Trading in the financial markets – whether Forex, stocks, or CFDs – can be highly rewarding, but it also comes with significant risks. Many traders, especially beginners, make the mistake of risking too much on a single trade, leading to devastating losses. The 1% rule is a simple yet powerful risk management strategy that can help you protect your trading account and stay in the game for the long term.
What is the 1% rule?
The 1% rule states that you should never risk more than 1% of your trading account on a single trade. This means if your account has $10,000, your maximum risk per trade should be $100.
Why is this rule so important?
- Prevents emotional trading – When you risk too much, fear and greed take over, leading to impulsive decisions.
- Protects against losing streaks – Even the best traders have losing streaks. Limiting risk ensures a few bad trades won’t wipe you out.
- Ensures longevity – By controlling risk, you give yourself time to refine your strategy and grow your account steadily.
How to apply the 1% rule
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Calculate your risk per trade – If your account is $5,000, 1% risk = $50 per trade.
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Set stop-loss orders – Determine your stop-loss level before entering a trade. If your stop-loss is 50 pips away, adjust your position size so that losing 50 pips only costs you 1% of your account.
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Stick to the plan – Discipline is key. Never override your risk management rules, no matter how confident you feel.
Check out: Forex risk management tools: automatic trading with popular market orders
Common mistakes to avoid
- Overtrading – Taking too many trades increases exposure. Stick to high-probability setups.
- Ignoring leverage risks – High leverage can amplify losses. Use it wisely.
- Moving stop-losses – Never widen a stop-loss to avoid a loss—this defeats the purpose of risk management.
1% rule real trade (EUR/USD example)
- Account: $10,000 → Max risk = $100
- Entry: 1.0800 | Stop-loss: 1.0750 (50 pips)
- Position size: 0.2 lots (losing 50 pips = $100 loss)
- Outcome:
- Win (1.0900): +$200 (2% gain)
- Loss (1.0750): -$100 (1% loss)
Top 5 FX and CFD brokers to start trading with
If you’re looking for a reliable broker to apply the 1% rule, here are five top-rated brokers with strong regulation, tight spreads, and excellent trading conditions:
BlackBull Markets
- Regulation: FMA (New Zealand)
- Features: ECN trading, tight spreads, fast execution
- Best for: Scalpers and professional traders
- Minimum deposit: $200
XTB
- Regulation: FCA (UK), CySEC (EU), KNF (Poland)
- Features: Low spreads, free educational resources, xStation 5 platform
- Best for: Beginners and intermediate traders
- Minimum deposit: $0 (varies by region)
eToro
- Regulation: FCA, CySEC, ASIC
- Features: Social trading, copy trading, user-friendly platform
- Best for: Social traders and beginners
- Minimum deposit: $50 (varies by region)
Risk disclaimer: eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 61% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
This communication is intended for information and educational purposes only and should not be considered investment advice or investment recommendation. Past performance is not an indication of future results.
Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.
eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.
AvaTrade
- Regulation: Central Bank of Ireland, ASIC, FSCA
- Features: Automated trading (MT4/MT5), fixed & floating spreads
- Best for: Algorithmic and long-term traders
- Minimum deposit: $100
Exness
- Regulation: FCA, CySEC, FSCA
- Features: Ultra-low spreads, instant withdrawals, high leverage
- Best for: High-frequency and high-volume traders
- Minimum deposit: $10
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1% rule in Forex trading - FAQ