How Much Should You Risk in a Trade When Day Trading?

How much should you risk in a trade when day trading? When day trading, you can face several losses in a row, if you are risking 50 dollars in each trade, 100 dollars won’t get you far. Some say you should only risk 1-2% of your capital in each trade, so if your initial capital is 100 dollars, risking 1 or 2 dollars might be a good place to first test the waters. (After testing your strategy with paper trading).

How much should you risk in each trade?

It depends on several things:

  • Initial capital
  • Your strategy
  • Personal preference

There can be other things that affect how much you should risk as well. However, I will be going through these three examples.

1. Initial capital

Your initial capital will determine how much dollar-wise you should be risking in each trade. That can be either 1% of your capital or 10%. In some extreme cases traders can risk even half of their portfolio in each trade, but in these cases they have so much money they can afford it. If they happen to lose all their capital, they will just do another deposit the next day. As a beginner, I wouldn’t recommend that.

2. Your trading strategy

Your strategy will affect how much you should risk in each trade as well. You should have considered; how much you are willing to put on a line in each trade you take. Don’t just wing it. Here are two options you can use and implement to your personal strategy.

You can risk 10% of your starting capital, for example with a 1000-dollar starting capital, always 100 dollars. Another option is to risk 10% of current capital. Meaning if you happen to lose a few times and have 700 dollars left, you will risk 70 dollars in each trade and so on. A little chart comparing these two strategies below. In the chart, I used 10% risk on these two different strategies. On the left you can see how the strategy affects your capital when you face 10 losses in a row and on the right with 10 wins in a row.

10 losses in a row10% of starting capital10% of current capital10 wins in a row10% of starting capital10% of current capital
Initial capital10001000Initial capital10001000
loss 1900900win 111001100
loss 2800810win 212001210
loss 3700729win 313001331
loss 4600656win 414001464
loss 5500590win 515001611
loss 6400531win 616001772
loss 7300478win 717001949
loss 8200430win 818002144
loss 9100387win 919002358
loss 100349win 1020002594
Difference between 2 money management strategies.

As you can see, there is a difference comparing these two strategies. On the other hand, if you happen to get 10 wins in a row, the wins are bigger with the second strategy as well. However, 10 wins or losses in a row isn’t likely to happen, so these are just some extreme examples. I used 10% risk in these examples to show the difference better. When risking a smaller amount, with just 10 trades, the difference won’t be that big.

3. Personal preferences

The third thing that determines how much you should risk per trade is your personal preference. For some, losing 50 dollars in a blink of an eye can be devastating. If this is the case, you probably should not risk 50 dollars in a short-term trade. Start smaller, so that you feel comfortable.

Most important thing when trading is to stick to your strategy and especially not move stop losses. If you see your position getting closer to your stop loss, and it makes you very uncomfortable, making you want to move the stop loss, risk less. Don’t go over your head, if you risk too much to begin with, chances are you won’t get far on your day trading journey.

Do not risk more than you can afford to lose

Do not risk all your savings. Especially if you are just getting started. Think about the beginning of day trading as a new hobby. You will likely lose money for quite some time. To prevent this, start with paper trading.

Paper trading means you wont be risking any money. It is a good way to start learning how day trading works without any financial risk. However, the feeling you get from trading with real money is very different compared to paper trading.

If at some point you decide to try out your strategy with real money, start small. Small enough that it won’t affect your daily life. Chances are, you won’t see the money you deposit when you first start trading with real money ever again in your bank account.

Final words

Remember that day trading is extremely risky and some estimates say 95% of day traders lose money. It can be very stressful and hard to get any results from your day trading. Because of this, you should start with paper trading and if you decide to go risk your own money, start small.

Other day trading related posts can be found here.

Hopefully this was helpful to you, have a nice day.

This is not financial or investing advice. Day trading is extremely risky and most of the day traders lose money. Always do your research before risking your hard-earned money.