Paul_ Harris

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What is the 2% rule in forex risk management and why is it effective?

The 2% rule suggests risking no more than 2% of total account equity on a single trade. For example, with a $10,000 account, the maximum risk per trade is $200. Institutions enforce strict risk-per-trade rules through compliance desks, while retail traders often neglect them. Benefits: protection from rapid equity drawdowns, allowing traders to survive losing streaks. Risks: miscalculation of stop-loss distance may cause traders to risk more than intended. The 2% rule ensures longevity, giving traders dozens of opportunities even after losses. It transforms forex from gambling into a controlled risk venture. Traders who embrace this discipline build resilience; those who ignore it often blow up early.