The 1% rule is a risk management strategy required by some Liquid plans, designed to help traders limit the amount of capital they risk on any given trade. This rule stipulates that a trader should only risk 1% of their account value on each trade they make, in order to minimize the potential for significant losses.
To illustrate the 1% rule, let’s consider an example. Suppose a trader has a $10,000 Speculator account. According to the 1% rule, they should not risk more than $100 on any given trade they make. This means that even if the trade turns out to be a losing one, the trader will only lose a maximum of $100. When a trader holds more than one open trade, whether in the same pair or different ones, the total aggregate potential loss is therefore limited to 1%. This means a trader could have losses and gains in several pairs which net each other, yet each should be less than 1% and the total also less than 1%. As same pair hedging is not allowed at Liquid, then individual pairs must be less than 1%. So you could have trades in 4 different pairs with -0.9, -0.9, -0.9, +2.9 and not violate the 1% rule. Yet the rule discourages this type of trading.
It is worth noting that some traders may choose to adjust the percentage they risk, upon reaching the Nitro level and big trading account. For example, traders with accounts of less than $100,000 Nitro may opt to use the 1% rule, while more experienced traders may feel comfortable risking 2% of their account value per trade . However, it is generally recommended that traders do not exceed a risk of 2% per trade, in order to avoid significant losses that can potentially wipe out their account.
The 1% rule can be applied to various Liquid trading strategies, including high or low leverage and swing trading. For swing trading, traders can use 1% of their current equity to determine how much they can risk per trade. For instance, if their account equity is $10,560, they can risk $105.60 per trade .
The 1% rule is a simple yet effective way to manage risk in trading, helping traders to preserve their capital and avoid significant losses. However, it is important to note that the 1% rule is not a guarantee of success, and traders must still conduct thorough research and analysis to make informed trading decisions.
In conclusion, the 1% rule is a popular risk management strategy that traders can use to limit the amount of capital they risk on any given trade. By only risking 1% of their account value per trade, traders can minimize potential losses and preserve their Nitro for future trades.