How to calculate position size in crypto: the 1% rule

"How much should I put in?" is one of the first questions beginners ask. But there is a better question behind it: how much am I willing to lose if I'm wrong? If you answer that question before every trade, you stay in control, even in a bad period.

In this article you will learn the difference between stake and risk, what the well-known 1% rule says and how to work out your own position size.

Your stake is not the same as your risk

Say you buy $2,500 worth of bitcoin and you set a stop-loss 4% below your entry price. Your stake is $2,500. But if your stop-loss is hit, you lose about $100 (plus fees and any slippage). That amount is your risk.

The difference matters. Two traders who both put in $2,500 can be taking very different risks: one with a stop 4% away, the other with no stop at all, or with a stop 20% away. Your risk depends on two things: how big your position is and where your stop-loss sits. How to choose that stop is explained in what a stop-loss is and how to set one.

What is the 1% rule?

The 1% rule is a rule of thumb that many traders use: don't risk more than about 1% of your total trading balance on a single trade. With a balance of $10,000, that means a maximum loss of $100 per trade if your stop-loss is hit.

Some people use 0.5%, others 2%. The exact number matters less than the idea behind it: every trade stays small enough to survive being wrong. The 1% rule is a common rule of thumb, not a law and not advice. What suits you depends on your own situation.

How to calculate your position size

The formula is simple:

An example with virtual money:

1. Your virtual balance is $10,000. You choose 1% risk: $100.
2. You want to buy bitcoin at $60,000 and your stop-loss goes at $57,600. That is 4% lower.
3. Position size = 100 ÷ 0.04 = $2,500. That is roughly 0.042 BTC.

If your stop-loss is hit, you lose 4% of $2,500, so about $100: 1% of your balance. Exactly what you chose in advance.

Notice what happens when your stop is further away. With a stop 8% away, your position becomes 100 ÷ 0.08 = $1,250. A wider stop means a smaller position, so your risk stays the same. That way you don't have to squeeze your stop just because you want a big position.

Why small steps matter so much

Losing streaks are normal. Even a careful plan can lose five or ten times in a row. Look at what such a streak does to your balance:

• Ten losses in a row at 1% risk: your balance drops by roughly 10%. Annoying, but manageable.
• Ten losses in a row at 5% risk: your balance drops by roughly 40%.

And climbing back is harder than you might think. That's simple maths: after a 10% drop you need a rise of about 11% to get back to where you started. After a 40% drop you need about 67%. After losing half, your balance has to double. The deeper the hole, the steeper the climb out.

That biggest drop from a peak is called the drawdown. It's one of the numbers that tell you more than gains alone.

Pitfalls

• Several positions that move together. Five trades at 1% each sound careful. But if they are five coins that usually fall together, in practice you may be taking closer to 5% risk at once. So also look at your total risk at any given moment.
• Fees on small positions. With a very small position, trading fees weigh more heavily. Include them in your calculation.
• Calculating with the wrong amount. Always calculate with the full size of the position, not with whatever amount you think you "really" put in.
• Moving your stop. The whole calculation only works if your stop stays where it is. If you lower it "just for a moment", you are risking more than you decided.

Practise risk management in Nova

In Nova every account starts in paper mode: you practise with virtual money on live prices. That lets you apply the calculation above for a few weeks and see how it feels when a series of trades goes badly, without it costing you real money.

A few things in Nova help with that:

• Stop-loss is mandatory. You cannot place an order without a stop-loss, so your risk per trade is always capped.
• Risk limits sit above everything else. You can only make them stricter, never looser.
• Kill switch: one button (plus a confirmation) stops all new orders. The button is on every screen.

Results in paper mode are simulated. Real execution, fees and above all emotions can turn out differently. Read also what paper trading is and where its limits are.

Want to run the numbers yourself? Create a free account and practise with virtual money.

Frequently asked questions

Do I always have to risk exactly 1%?

No. The 1% rule is a rule of thumb. Many traders stay somewhere between half a percent and two percent. What suits you depends on your situation. This article is an explanation, not financial advice.

Is the 1% based on all my savings or on my trading balance?

Usually people calculate with the balance they use for trading. Money you need for bills or emergencies does not belong in it.

Is my loss always exactly 1% when my stop-loss is hit?

Not always. Slippage, price gaps and fees can make it a bit more. So allow for a small margin.

What happens when my balance goes up or down?

Then the amount that 1% stands for changes too. If your balance falls, your positions automatically get smaller. That helps you get through a bad period.