The Risk Management Guide: Stop Loss, Lot Size, and Risk Ratio
Quick Answer
Risk management means defining your potential loss before entering any trade. The golden rule: never risk more than 1–2% of your capital on a single position, always set a stop loss based on market structure rather than monetary value, and aim for a risk-to-reward ratio of at least 1:2.
Courses Related to This Topic
Frequently Asked Questions About Risk Management & Capital Preservation
How much should I risk per trade?
The widely accepted standard is risking a maximum of 1% to 2% of your account balance per trade. This rule ensures that a streak of consecutive losses will not wipe out your trading capital.
How do I calculate the correct lot size?
Determine the cash amount you are willing to risk, divide it by your stop-loss distance in pips, and then divide that figure by the currency pair's pip value. You can also use the position size calculator in our tools section.
Is high leverage dangerous?
Leverage itself is not the danger; oversized positions are. With a fixed lot size and a defined stop loss, your monetary risk remains unchanged—the hazard arises when traders open excessively large positions simply because leverage is available.