Risk & position sizing
What is the 2% risk rule and how does it protect a trading account from drawdown cascades?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
The 2% risk rule limits the maximum loss on any single trade to 2% or less of total account value, helping prevent a string of losing trades from causing catastrophic drawdowns.
How it works
By capping risk per trade, a trader could endure many consecutive losses before severely depleting their capital, preserving the ability to continue trading and recover over time.
An example
A trader with a $20,000 account limits any single trade's potential loss to $400, adjusting position size and stop-loss placement accordingly before entering.
Risk & limitations
The rule only limits planned risk; unexpected gaps, halted stocks, or stop-loss failures can still cause losses that exceed the intended 2% threshold.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.