You know the 1% rule as a flat number: risk 10 dollars on a 1,000 dollar account. Fixed-fractional sizing takes that idea and lets it breathe. Instead of a fixed dollar amount, you risk a fixed fraction of whatever your account is worth right now, every single time.
This one change does something powerful. When you are winning and your account grows, 1% of a bigger account is a bigger dollar risk, so you press your edge automatically. When you are losing and your account shrinks, 1% of a smaller account is a smaller dollar risk, so you pull back automatically. You risk more when you can afford it and less when you cannot, without ever having to think about it.
Then there is the question of what fraction to pick. The Kelly criterion is a formula that calculates the mathematically optimal fraction to risk, given your edge. For a trade that wins as often as it loses but pays two to one, full Kelly might tell you to risk 25% of your account on a single trade. That is technically optimal for growth, and in the real world it is far too aggressive.
Why too aggressive? Kelly assumes you know your edge exactly, and you never do. Your real win rate wobbles, and a string of losses at full Kelly can cut your account in half. So serious traders use a fraction of Kelly: a half, a quarter, or less. Half of that 25% is 12.5%, a quarter is about 6%, and most keep the actual risk far smaller still, often back near that 1% to 2% range. A smaller fraction gives up a little growth for a lot less pain.
Fixed-fractional sizing risks a set percentage of your current account, so you scale up in wins and down in losses automatically. A conservative fraction of Kelly picks that percentage while leaving a wide safety margin, because you never truly know your edge.
Tip. When in doubt, size down. The cost of risking too little is slower growth, which is survivable. The cost of risking too much is a drawdown you never climb out of, which is not.