Fixed-Fractional Sizing
Risking a constant slice of capital per position — simple, robust, and self-correcting.
Fixed-fractional sizingDeciding how much to bet on each trade or holding. is the simplest robust money-management method: you risk a constant fraction of your current capital on every position (e.g. 1% per trade — the “1% rule”). Despite its simplicity, it has elegant self-correcting properties.
The beauty of fixed-fractional sizingDeciding how much to bet on each trade or holding. is that risking a constant percentage (not a constant rupee amount) makes your bet size automatically shrink when you’re losing and grow when you’re winning* — a built-in survival and compoundingEarning returns on your returns — growth that accelerates over time. mechanism. Because you risk, say, 1% of current capital, when your account falls (a losing streak) your 1% bets get smaller* in rupee terms — you automatically de-risk into weakness, protecting you from ruinThe probability of losing so much you can’t continue. exactly when you’re most vulnerable. And when your account grows, your 1% bets get larger — you automatically scale up your edgeA repeatable, structural reason your trades win over time. as you can afford to, compoundingEarning returns on your returns — growth that accelerates over time. gains. This adaptive behaviour happens without any decision — the percentage rule does it for you, removing emotion from sizingDeciding how much to bet on each trade or holding.. It also enforces consistency (every trade risks the same fraction, so no emotional “this one’s a sure thing” oversizing) and directly controls risk of ruinThe probability of losing so much you can’t continue. (small constant fraction = ruin probability near zero). The key implementation detail from the trading track: you size by your *stopA pre-set exit that caps your loss if a trade goes wrong. distance* — `sharesA unit of ownership in a company. = (capital × fraction) ÷ (entry − stopA pre-set exit that caps your loss if a trade goes wrong.)` — so the risk (not the position value) is the fixed fraction. Simple, robust, self-correcting, and emotion-free: it’s the default money-management method for good reason.
- What it is — risk a constant fraction of current capital per position (e.g. 1%), not a fixed rupee amount.
- Self-correcting — bets auto-shrink when losing (de-risk into weakness) and auto-grow when winning (compound strength).
- Benefits — emotion-free consistency, controls risk of ruinThe probability of losing so much you can’t continue. (small constant fraction), no per-trade decision needed.
- Implementation — size by stopA pre-set exit that caps your loss if a trade goes wrong. distance: sharesA unit of ownership in a company. = (capital × fraction) ÷ (entry − stopA pre-set exit that caps your loss if a trade goes wrong.), so risk is the fixed fraction.
ExampleRisking 1% on ₹10L capital = ₹10,000 per trade. After a losing streak drops you to ₹8L, 1% is now ₹8,000 — you’re automatically betting smaller while weak. After a winning run to ₹12L, 1% is ₹12,000 — automatically betting bigger while strong. The percentage rule de-risked and compounded for you, with no decision and no emotion.
Key takeawayFixed-fractional sizingDeciding how much to bet on each trade or holding. risks a constant fraction of current capital per trade (e.g. 1%), which automatically shrinks bets when you’re losing (de-risking into weakness) and grows them when winning (compoundingEarning returns on your returns — growth that accelerates over time.) — a self-correcting, emotion-free survival mechanism. Size by stopA pre-set exit that caps your loss if a trade goes wrong. distance so the fixed fraction is your risk, not position value.
FAQs
What fraction should I risk per trade?
Commonly 1% (conservative, the standard) up to ~2% for those with a proven edge and higher risk tolerance — and *less* for beginners or uncertain strategies. The exact number matters less than keeping it *small and constant*: small enough that losing streaks can’t ruin you (risk of ruin), constant so sizing stays disciplined and self-correcting. When unsure, err lower.