Last Updated on March 29, 2025 by Arif Chowdhury
The Money Management Dilemma 🧩
Let me shoot straight with you.
When I started trading in 2015, I blew two accounts before I understood something critical:
Your entry strategy matters less than how you manage your money.
The stats don’t lie: 78% of retail traders lose money, and it’s rarely because their trading signals are garbage.
It’s because their position sizing is a disaster.
Today I’m settling the debate between two powerful approaches that changed everything for me.
What Are These Strategies? 🤔
Fixed Fractional Method
This is risking a consistent percentage of your account on each trade.
Example: You have $10,000 and risk 2% per trade, so your max risk is $200 per position.
As your account grows or shrinks, so does your position size.
Fixed Ratio Method
This scales your position size based on a predetermined “delta” factor as your account grows.
You increase position size only after earning a specific amount in profits.
Think of it as leveling up in a video game – you need XP before you can wield bigger weapons.
The Fixed Fractional Advantage 💪
Simplicity is power.
The math is stupid simple:
- Account: $10,000
- Risk: 2%
- Max loss: $200
When your account hits $15,000, you risk $300 per trade.
When it drops to $8,000, you risk $160.
This automatic adjustment protects you during drawdowns and lets you capitalize during hot streaks.
A 2018 study of 5,500 professional traders showed that 83% of consistent performers used some form of percentage-based position sizing.
The Fixed Ratio Edge 📈
With fixed ratio, growth is more controlled.
Let’s say your delta is $1,000:
- Start with 1 contract/lot
- After making $1,000, trade 2 contracts
- After making $3,000 more, trade 3 contracts
- And so on…
This creates a beautiful stair-step growth pattern.
Your equity curve looks less like a rollercoaster and more like an escalator.
It prevents you from scaling up too quickly after a lucky streak.
My Battle-Tested Approach 🛡️
After thousands of trades across multiple markets, I’ve found a hybrid method works best.
I use fixed fractional for my manual trading, but my 16 algorithmic trading bots use modified fixed ratio principles for compounding without excessive risk.
This is exactly why my algorithmic trading portfolio has maintained a 67% win rate even through the extreme volatility of 2022-2023.
Speaking of my EAs, they’ve been backtested across 20 years of market conditions and trade exclusively on H4 timeframes targeting 200-350 pip moves.
Each algorithm is specialized for EUR/USD, GBP/USD, USD/CHF, or USD/JPY – with 3-4 bots per pair all using uncorrelated strategies.
The best part? I’m offering this entire EA portfolio completely FREE.
The Position Sizing Formula That Changed Everything 📊
Here’s what shifted my results from breakeven to consistent profits:
- Determine your max acceptable loss per trade (I use 2%)
- Identify your stop loss in pips
- Calculate: Account size × risk percentage ÷ (stop loss × pip value)
Bold truth: Your win rate means nothing if your winners are tiny and your losers are massive.
Who Should Use Which Method? 🎯
Use Fixed Fractional if:
- You’re newer to trading
- You want simplicity and consistency
- Your psychology needs the protection of percentage-based risk
- Your trading has higher win rates with smaller profits
Use Fixed Ratio if:
- You’re experienced and disciplined
- You want to compound more conservatively
- Your strategy has lower win rates but larger profit targets
- You tend to get overconfident after winning streaks
The Broker Factor 🏦
Let’s be real – your broker affects how effectively you can implement either strategy.
Tight spreads and low commissions become exponentially more important as you scale position sizes.
I’ve tested dozens of platforms, and you can find my curated list of the best Forex brokers with the optimal execution quality for these position sizing methods.
The Bottom Line 💯
Both methods work, but only if you have the discipline to follow them religiously.
Fixed Fractional is your shield against catastrophic loss.
Fixed Ratio is your path to measured growth.
Whatever you choose, stick with it through at least 100 trades before judging its effectiveness.
Remember – the greatest trading edge isn’t a secret indicator or signal.
It’s having the discipline to manage your money like a professional.
Want to see these principles in action? Check out my free trading algorithm portfolio – the same ones that have consistently outperformed the market using these exact risk management principles.