One Trade Can Sink You: Nithin Kamath On The Biggest Risk Retail Investors Overlook

Zerodha founder Nithin Kamath has issued a sharp warning to traders: ignoring position sizing, which is how much capital you allocate to each trade, can lead to catastrophic losses, even if you are right most of the time.

In a LinkedIn post, Kamath underscored how retail traders often obsess over predicting market direction, but neglect how much they risk per trade, a mistake that can be fatal. “You can be right on direction 60% of the time and still lose everything if you size your positions poorly,” he wrote. 

One bad trade, if oversized, can erase months of steady profits.

Kamath called position sizing a “core pillar of risk management,” not a technical detail to revisit later. He backed this up with insights from a conversation between SEBI-registered research analyst Sandeep Rao and veteran trader Tom Basso, one of the original “Market Wizards.”

Basso initially followed a basic rule drawn from legendary trader Larry Hite, which is risk the same percentage of equity on each trade. The idea: every trade carries equal potential loss, keeping portfolio risk balanced. But the simplicity broke down when Basso faced an extremely volatile silver position. Despite staying within risk limits, the sharp price swings created anxiety among clients and exposed a flaw: volatility matters as much as raw numbers.

That moment shifted Basso's thinking. He began incorporating volatility as a second filter alongside risk percentage. Both were calculated as percentages of equity, and he used the smaller of the two to size his positions. This dual-layered method helped him stay emotionally and financially grounded during market turbulence.

A third consideration was margin. Some markets seem safe based on volatility and risk, but demand high margins because of rare but extreme price moves. Basso adjusted his position sizing by factoring in margin-to-equity ratios to avoid unintended leverage buildup.

Kamath said Basso's three-part framework: risk percentage, volatility filter, and margin considerations, which provides automatic protection. It reduces exposure during volatile periods, limits emotional decision-making, and keeps the portfolio from becoming dangerously stretched.

“The takeaway is simple but often ignored,” Kamath wrote. “Survival in markets depends as much on how much you bet as on getting the trade right.”