Fixed fractional sizing risks a set percentage of your current balance each trade, so the dollar risk moves with the account. Fixed risk, or fixed dollar, sizing risks the same amount every trade no matter the balance. Both are valid; they just behave very differently through winning and losing runs.
Fixed fractional (percentage of balance)
You risk, say, one percent of whatever the account is worth today. As the balance grows, the dollar risk grows with it, so profits compound automatically. As the balance falls in a drawdown, the dollar risk shrinks, so each loss is smaller than the last. This is the method behind the one percent risk rule.
Fixed risk (same dollars every trade)
You risk a flat amount - $100 a trade, for example - regardless of whether the account is at $8,000 or $12,000. It is simpler to track and keeps every loss identical in size, but it does not compound gains and it does not ease off during a losing streak.
The gap looks small over five trades, but across a long drawdown the fixed fractional method keeps trimming risk while fixed dollar keeps taking full-size hits - which is why percentage sizing tends to produce shallower drawdowns.
Which should you use?
- Fixed fractional - the default for most traders and long-term growth, because it compounds and self-protects in drawdowns.
- Fixed dollar - fine for very small accounts, short test windows, or traders who want dead-simple bookkeeping.
Important: whichever you choose, the position size must still be derived from your stop distance. The percentage or dollar amount only sets how much you risk; the stop still decides the lot.
Compare them on your own data
The difference between these methods is easiest to see, not read. Run the same set of trades in a backtesting simulator under each sizing rule and compare the two equity curves. You will feel immediately why compounding a percentage of a growing balance, and shrinking risk into a falling one, changes the whole shape of your results.
Position sizing method FAQ
What is the difference between fixed fractional and fixed risk sizing?
Fixed fractional risks a percentage of the current balance, so dollar risk moves with the account. Fixed risk risks the same dollars every trade. The first compounds; the second stays steady.
Which position sizing method is better?
Fixed fractional usually wins for long-term growth because it compounds and shrinks risk in drawdowns. Fixed dollar is simpler and can suit small accounts. Most traders use fixed fractional at about one percent.
Does fixed fractional sizing reduce drawdowns?
Yes. Each loss is a percentage of a shrinking balance, so losses get smaller during a drawdown. Fixed dollar keeps taking the same-size loss, so drawdowns can deepen faster.