Most traders who quit do not run out of good ideas. They run out of money. Risk management is the set of rules that makes sure no single trade, bad day or losing streak can knock you out of the market.
1. Risk a small, fixed percentage per trade
Choose a maximum loss per trade as a percentage of your account, commonly 0.5% to 2%, and stick to it. At 1%, even ten losses in a row leave you with about 90% of your account. At 10% per trade, the same streak leaves you with about 35%.
| Risk per trade | Account left after 10 straight losses |
|---|---|
| 0.5% | 95.1% |
| 1% | 90.4% |
| 2% | 81.7% |
| 5% | 59.9% |
| 10% | 34.9% |
2. Size positions from the stop, not the other way round
Set your stop where the trade idea is invalidated, then calculate the lot size so that hitting the stop costs exactly your chosen risk. The lot size calculator does the arithmetic. This keeps your risk constant whether the stop is 15 pips or 80.
3. Always use a stop loss
A stop loss is not a sign of weak conviction. It is the price at which you have been proven wrong. Place it with the order. Do not move it further away once you are in the trade.
4. Know your risk:reward and your break-even win rate
If you risk 1 to make 2, you only need to win more than 33% of trades to be profitable before costs. At 1:1 you need more than 50%. Our risk:reward calculator shows the break-even win rate for any ratio. Remember that spreads and commissions raise it slightly.
5. Respect drawdown maths
Losses and gains are not symmetrical:
| Drawdown | Gain needed to recover |
|---|---|
| 10% | 11.1% |
| 20% | 25% |
| 30% | 42.9% |
| 50% | 100% |
| 75% | 300% |
The deeper the hole, the harder the climb. Try the drawdown recovery calculator. Many traders set a daily or weekly loss limit (for example 3% a day) after which they stop trading until the next period.
6. Watch correlated positions
Buying EUR/USD and GBP/USD at the same time is not two independent trades. The pairs often move together, so you have roughly doubled your exposure to the US dollar. Each market page lists the pairs most and least correlated with it. See currency correlation explained.
7. Be careful with leverage and events
High leverage does not change your risk per pip, but it lets you open positions far too large for your account. Around high-impact news (central bank decisions, US jobs data, CPI) spreads widen and price can jump past stops. Reduce size or stay flat if you are unsure.
A simple checklist before every trade
- Where is my stop, and why there?
- How much money is that, and is it at most my maximum risk %?
- Is the risk:reward at least what my strategy needs?
- Do I already have correlated exposure?
- Is there major news in the next hour?
If any answer is “I don’t know”, don’t take the trade yet.