Rebasing risk after a withdrawal: 1% of $12,000 is not 1% of $10,000

[Fairman]

Rebasing risk after a withdrawal: 1% of $12,000 is not 1% of $10,000

Account at $12,000, risk 1% per trade, so $120. You withdraw $2,000 and the account is $10,000. If the lot size or the dollar risk stays where it was, the risk per trade is now 1.2%.

Ten losers in a row make the difference visible. At a fixed $120 each, that's $1,200 lost, 12% of the new balance. At a correct $100, 1% of $10,000, the loss compounds down to $956, 9.6%. A 2.4 point difference in drawdown from a number nobody updated.

In lots, with a 20 pip stop at $10 a pip: $120 is 0.6 lots and $100 is 0.5 lots. A 0.6 lot position is 20% too big for the account.

A fixed lot input in an EA has the same problem, because a withdrawal triggers nothing and the lot stays where it was. Deposits do it the other way.

A routine that helps: after any deposit or withdrawal, recompute 1% of the new balance and update the lot input the same day, before the next trade.

[FXS HongKong Scalper]

A neat example of a mistake that is easy to make. Fixed lot EAs are the worst offenders, since a lot size set months ago may now represent a very different percentage. A simple habit is to recalculate the risk amount right after every deposit or withdrawal and update any EA inputs at the same time. Some traders also keep a separate small note of the current risk amount on their screen so it is always visible.

[Fairman]

It goes both ways after losses. If the $12,000 account has drawn down to $9,000 and the lot size is still the one for $12,000, a risk of $120 is 1.33% of the account. Many traders keep the old size after a drawdown because it feels like a temporary dip. The real percentage risk per trade has gone up exactly when the account is least able to absorb a bad run. Resizing after a drawdown is the same arithmetic as resizing after a withdrawal, and the same routine covers both: balance changed, recompute.

[Fairman]

How often to rebase is a separate question. Resizing before every trade follows the balance exactly, resizing once a day lags a bit, and resizing weekly lags more. Compounding gives a feel for it: ten winners of 1.5R at 1% each, with resizing after every trade, give 1.015 to the tenth, a gain of 16.05%. Without resizing, 15%. The difference is a point across ten trades. So resizing once a day is accurate enough for most people, and the rule that matters is to do it after any cash movement, since those are large step changes.

[Fairman]

Balance and equity give different sizes when a position is open. With $10,000 in the account and a floating loss of $200, equity is $9,800, so 1% is $98 against $100 on the balance. A small difference here, but if the floating loss is $1,500, it's $85 against $100, and a second trade sized by balance risks more than 1% of what you've got. Some EAs offer a choice between balance and equity for risk calculations. Equity is more conservative when you're losing and less conservative while you're winning, so check which one the one you use has.

[Fairman]

Rounding matters in the same place. $100 of risk with a 23 pip stop gives 0.435 lots. Brokers want a step of 0.01, so the choice is 0.43 or 0.44. At $10 a pip, 0.43 risks $98.90 and 0.44 risks $101.20. Rounding down keeps you under the limit, and rounding up puts you over it every time. Over hundreds of trades the habit adds up to a slight bias in risk. In an EA, floor the lot size to the step, and in a manual routine, round down by habit and skip the trade if it rounds to zero.