When setting up a risk management playbook, active traders must choose between two foundational position sizing models:
- Fixed Percentage Risk (Dynamic % Sizing): Risking a constant percentage (e.g., 1.0%) of floating account equity on every trade.
- Fixed Monetary Risk (Static Cash Sizing): Risking a fixed cash amount (e.g., £100) on every trade regardless of account fluctuations.
While both approaches eliminate wild over-leveraging, they produce drastically different equity curve behaviors during winning and losing streaks. In this comparative study, we analyze which model best guards against account ruin.
1. Fixed Percentage Risk (1.0% Model)
Under Fixed Percentage Sizing, your monetary risk per trade recalculates dynamically before every trade entry:
Monetary Risk (£) = Current Floating Equity (£) × Risk Percentage (1.0%)
Scenario: Starting Equity £10,000 | 5 Consecutive Losses (1.0% Risk)
Trade 1: Risk 1% of £10,000 = £100.00 -> Equity £9,900.00
Trade 2: Risk 1% of £9,900 = £99.00 -> Equity £9,801.00
Trade 3: Risk 1% of £9,801 = £98.01 -> Equity £9,702.99
Trade 4: Risk 1% of £9,703 = £97.03 -> Equity £9,605.96
Trade 5: Risk 1% of £9,606 = £96.06 -> Equity £9,509.90
Total Drawdown after 5 Losses = -4.90% (Not -5.00%)
Key Advantage: Automatic Loss De-escalation
Because your monetary risk drops as your account balance shrinks, Fixed Percentage Sizing makes it mathematically impossible to reach zero. It automatically slows down your loss rate during severe drawdowns.
2. Fixed Monetary Cash Risk (£100 Model)
Under Fixed Cash Sizing, you risk a static £100 per trade regardless of whether your balance is £10,000 or £8,500.
Scenario: Starting Equity £10,000 | 5 Consecutive Losses (£100 Fixed Risk)
Trade 1: Risk £100 -> Equity £9,900.00
Trade 2: Risk £100 -> Equity £9,800.00
Trade 3: Risk £100 -> Equity £9,700.00
Trade 4: Risk £100 -> Equity £9,600.00
Trade 5: Risk £100 -> Equity £9,500.00
Total Drawdown after 5 Losses = -5.00%
Key Advantage: Straightforward Recovery & Consistency
During a recovery phase after a drawdown, Fixed Cash Sizing makes it easier to regain lost equity because your win size does not shrink after losses.
Head-to-Head Comparison Summary
| Criteria | Fixed Percentage Risk | Fixed Monetary Cash Risk | | :--- | :--- | :--- | | Drawdown Protection | Superior (Dampens loss speed) | Moderate | | Compounding Growth | Exponential (Scales up in wins) | Linear | | Calculation Speed | Requires Position Calculator | Fast / Instant | | Recommended Account Size | Any size (> £2,000) | Small Accounts (< £2,000) |
Final Recommendation
For accounts over £2,000, deploy Fixed Percentage Risk (0.5% to 1.0%) to harness compounding gains while maintaining an automatic safety net against drawdown ruin.