Welcome back, traders. In this video, we’re going to cover the maximum account risk rule.
This is a soft rule so if you do accidentally violate this rule, you won’t lose your challenge account or your funded account. What will simply happen is the trades will be closed. You will lose a small amount on the spread so we suggest that you try to avoid breaching this rule, where possible.
There’s two parts to the maximum account risk rule. The first part is the max position size. The position size is 2% for hare accounts, and the maximum position size is 2% on turtle accounts during your live accounts. If a position is open that’s greater than 2% risk per trade, it will automatically be closed.
Now the percentage risk is calculated based on the entry point, the stop loss and the lot size that you’ve used to enter the position.
We always recommend using a trade manager to calculate your lot size in a percentage, instead of just using random lot sizes, because one lot on gold versus one lot on Euro USD versus indices are all completely different. So using a trade manager to calculate the percentage risk will give you a big advantage over the long term, and it will make sure that you don’t violate this rule. This rule only applies to funded accounts.
Now we had a lot of feedback of people who didn’t want to use a stop loss during the challenge, which is okay, and so we allow people not to use a stop loss during the challenge phases of the account. This means if there’s no stop loss, you can’t calculate the maximum position size. There’s no maximum position size rule for accounts during the challenge phase, only in the funded phase where the maximum position rule of 2% applies to your funded account.
The second part is maximum total open risk. Now maximum open total risk is an extension of the first part, and it’s equal to your maximum draw-downs.
It’s really quite simple. The maximum draw-down on the account, let’s say you’re on a hare account and it’s 10%, then the trader cannot open more than 10% risk. For example, if they’ve got five trades with 2% risk each, and then they try to open another trade, then the sixth trade will automatically be closed, and the other five remain open.
If one of those five trades are moved to break even, now your total account risk is 8% and so you’ve got another 2% available that could be opened. You could open four trades of 0.5%, you could open two trades of 1%, or you could open another one trade of 2%, however you prefer to trade.
It’s important to note that the percentage is based on the balance high watermark at the end of each day, just like the maximum drawdown is.
If you have any questions, please comment below the video or send us a message on chat, and we’re happy to answer any of your questions.