Fixed fractional position sizing risks a constant percentage of current equity per trade. It is the professional default because it has two properties no other method offers: automatic de-risking on losses and automatic re-risking on wins.
The Math
Risk$ = Equity × f, where f is typically 0.005 to 0.015
As equity grows, dollar risk grows proportionally. As equity shrinks, dollar risk shrinks proportionally. This compounds gains during winning streaks and buffers losses during losing streaks — without any human intervention.
Comparative Simulation
| Scenario | Fixed Dollar | Fixed Fractional |
|---|---|---|
| 10 wins at 2R, then 10 losses at 1R | $50,000 → $60,000 → $50,000 | $50,000 → $60,442 → $54,551 |
| 10 losses at 1R, then 10 wins at 2R | $50,000 → $40,000 → $50,000 | $50,000 → $45,271 → $54,551 |
Choosing f
- 0.5% — highly conservative, suitable for prop firm challenges
- 1.0% — professional standard, balanced growth and safety
- 1.5% — aggressive but still tolerable for statistically validated systems
- 2.0%+ — reserved for institutional systems with proven decades of data
Traders who choose f = 3% or 5% almost always base it on a small sample of recent wins. When the natural drawdown arrives, the account is wiped before the sample size ever validated the assumed edge.
Fixed fractional is the correct default. Pick an f you can defend during a 10-loss streak, automate the calculation, and never override it in the moment.
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