Risk Management Basics

Lesson 1: Decide your risk per trade

Professional traders think in risk first. Pick a fixed percentage of your account you're willing to lose on any one trade, typically 0.5% to 1%. On a $10,000 account, 1% is $100. That number stays the same whatever the market or setup.

Lesson 2: Every trade needs a stop loss

A stop loss is the price at which your trade idea is wrong. Place it where the setup is invalidated (beyond a swing point or zone), not at a random number of pips. If the stop has to be far away, trade smaller rather than tightening it.

Lesson 3: Position sizing

Position size connects your risk amount and your stop distance: size = risk amount ÷ (stop distance × value per pip or point). With $100 risk and a 25-pip stop on EUR/USD (where a standard lot is about $10 per pip), you'd trade 0.4 lots. The position size calculator does this instantly.

Lesson 4: The maths of drawdowns

Losses and gains aren't symmetrical. Lose 10% and you need 11% to recover. Lose 50% and you need 100%. Risking 1% per trade, ten losses in a row cost about 9.6%; risking 5%, the same streak costs about 40%. Check your own numbers with the drawdown calculator.

Key takeaways

• Fix risk per trade before thinking about profit.
• Place stops where the idea is wrong, then size the position to fit.
• Small, consistent risk survives the losing streaks every trader has.