Risk management in trading
Risk management decides whether you will still be trading a year from now. Your strategy determines how much you can make; your risk determines how long you survive.
The 1% rule
Risking at most 1% of your account per trade means that, with $10,000, a losing trade costs you $100. Ten losses in a row — perfectly normal for any strategy — leave you with about 90% of your capital. At 5% per trade, the same streak leaves you with roughly 60%.
How to calculate position size
Position size = money at risk ÷ distance to the stop. If you risk $100 and your stop is 20 pips away on EUR/USD (1 pip ≈ $10 per standard lot), the size is 100 ÷ (20 × 10) = 0.5 lots.
The stop goes where the idea stops being valid, and the size adapts to that distance. Never the other way round.
Daily and total limits
- Daily loss limit: for example 3–5%; once hit, you stop trading for the day.
- Maximum loss: the level at which you review your whole method.
- Leverage: use it to size positions, not to increase risk.
Frequently asked questions
How much should I risk per trade?
Between 0.5% and 1% while you learn. Experienced traders rarely exceed 2%.
Does leverage increase risk?
It increases the position size you can open. Your real risk is the distance to the stop multiplied by the size.