The term maximum risk per trade idea might sound intimidating, but it is a simple term used by trading firms to help you manage losses. In this guide, we’ll break down max risk per trade idea step-by-step using examples.

Key Assumptions

Let’s set up our scenario:

You have a $10,000 trading account.

Your max risk per trade idea is 1%, meaning you can lose no more than $100 on a single trade idea.

Why $100?

1% of $10,000 = $100. This is the most you can lose on one trade idea.

What is a Trade Idea?

A trade idea refers to all positions opened for a single currency pair (or asset, like gold, represented as XAUUSD) during a period when at least one position remains open. The trade idea begins when you open the first position and ends when all positions for that pair are closed. 

Example of a Single Trade Idea

You open a position in XAUUSD (gold) at 9:00 AM.

You open a second XAUUSD position at 10:00 AM.

You close the first position at 11:00 AM.

You close the second position at 12:00 PM.

This is one trade idea. Why? Because the positions overlapped (both were open simultaneously at some point). The trade idea started at 9:00 AM and ended at 12:00 PM. Ultimately, the idea ends once all positions of those pairs are closed.

What’s Not a Singular Trade Idea?

So, when do you have multiple trade ideas? Well, a trade idea requires overlapping positions and is specific to one currency pair.

Tips to Manage Max Risk Per Trade Idea

To further help you succeed, here are actionable tips:

Close Positions Early: Close positions before losses exceed the maximum risk per trade idea.

Track overlaps: Be mindful of when positions for the same pair overlap, as they count as one trade idea.

Understand your pairs: Familiarize yourself with the assets you’re trading (e.g., XAUUSD is gold, GBPUSD is pound vs. dollar) to avoid confusion.

Practice discipline: Consistently stick to the 1% rule to protect your account and foster long-term trading success.

Why It Matters

Ultimately, the maximum risk per trade idea rule is a cornerstone of risk management. By limiting losses to 1% per trade idea, you shield your account from large drawdowns. As a result, you gain more opportunities to trade and grow your portfolio over time.