Risk Management - 1%?

I keep reading that traders only risk 1% of their account per trade. My questions are:

1) How does leverage figure into this? If I had 100,000 USD in my account then I would only risk 1000 USD per trade, but this would increase if I used leverage, so how does the 1% rule work with leverage?

2) There are investors who diversify into currencies long term and do not risk only 1% but 100%! Does that make them gamblers.

leverage does not change the equation, it just means you do not need as much equity to fund the trade. Apart from this the trade is exactly the same with the same risk.

The 1% rule ALWAYS applies irrespective of whether you leverage or not. The 1% loss applies to the monetary amount on your account, not how much you actually trade. Let me explain. In your example, you state an account balance of 100 000 USD, risking only 1% per trade = max.loss of 1 000 USD. If you decide to trade, let's say USD/JPY, and trade a leverage amount of 200 000 USD, then each pip is worth 20 USD, allowing you a negative movement of 50 pips before your 1 000 USD loss is hit (though do allow for your brokers spread of a couple of pips). However, if you leverage up to 500 000 USD, then each pip would be worth 50 USD, though your 1 000 USD loss would be hit after only a 20 pip move against you (as opposed to 50 pips previously). So you see, it is the leverage amount that will determine how quickly you loss target will be hit if price moves against you. The logic is then, keep your gearing up low and under control and if a novice, allow for wide price swings (+100 pips) because no doubt many a time you will get your entry direction wrong and will move against you, only to come back at a later stage - BUT ALWAYS use stops - if you have a 1000 USD loss per trade rule, stick to it, because if not, you could very easily end up in the Traders Graveyard like so many do! Good luck.

and what's leverage better for the beginer?
greetings

As low as you can go. It'll mean you'll lose your money slower, giving you more time to learn.

As one successful trader said in one of the Market Wizard books, most traders can't outlast the learning curve of trading because they blow their accounts before they finish learning.

Leverage is irrelevant you can take the same risk with 1:10 and 1:500 leverage and lose or gain just as much.
With higher leverage you have more free margin. No one forces you to overleverage your account and trade
sh*tloads of money only because you can.

You can adjust your lot size to your stop size, so if you are stopped out you don't lose more than 2%, however your risk reward ratio must be a good one always.

For example
The broker lot size is $10.000
2% risk value from your total account is $300
and your stop loss is at 124 pips
it means that your pips must be valued at $2.41 (300/124)
So.. you should not trade more than 2.4 lots.

Answer to 1: The money management system I use is 5% of my account value with no more than 1% being used on a single trade.

Answer to 2: I do invest in short-term/long-term at the same time. I use the same money management system for both. I never risk 100%. You should never risk 100%. Just dumb....

J

Maybe you want to say 3% risk value from your total account is 300$ , right ?

Well, yes if your total account is $1000
but if your total account is $1500 then 2% is 300