Risk Management in Trading: Position Sizing and the 1% Rule (with ₹ Examples)

Two traders can pick the same stock at the same price and get very different results, because one bought too much. Position sizing decides how much a loss hurts, and it is the part of trading most beginners skip.

The 1% rule

Risk no more than 1% of your trading capital on a single trade. "Risk" means the amount you lose if your stop-loss is hit, not the amount you invest.

The formula

Quantity = Amount you are willing to risk ÷ (Entry price − Stop-loss price)

Worked example

Trading capital: ₹2,00,000
Risk per trade at 1%: ₹2,000
Entry price: ₹500
Stop-loss: ₹475, so risk per share is ₹25
Quantity: ₹2,000 ÷ ₹25 = 80 shares
Position size: 80 × ₹500 = ₹40,000

You invest ₹40,000, but if the stop-loss is hit you lose about ₹2,000, which is 1% of your capital, plus charges.

Why it matters

With 1% risk, even 10 losing trades in a row cost you about 10% of your capital. You survive to trade again. With 10% risk per trade, the same losing streak can wipe out most of your account.

A wider stop means fewer shares

If your stop-loss in the example above was ₹450 instead of ₹475, risk per share becomes ₹50, so you would buy only 40 shares. The rupee risk stays the same.

Other risk rules worth having

A maximum total risk across all open trades, for example 5%
Never move a stop-loss further away
Account for gap risk: stocks can open below your stop-loss
Reduce size during losing streaks

Risk management is taught in every CIMS course, starting with the Foundation course.

Frequently asked questions

What is the 1% rule in trading?

It means risking no more than 1% of your total trading capital on any single trade. With ₹2,00,000 of capital, the most you would lose on one trade is ₹2,000.

Is the 1% rule the same as investing 1% of capital?

No. It limits how much you lose if the stop-loss is hit, not how much you invest. The position itself can be much larger.