Risk Management
Position sizing: decide the loss before the trade
Size every trade from the loss you can accept, not from how sure you feel. The formula, a worked example and what a losing streak does to different sizes.
Read the explainerTopic
Risk management
How much you can lose matters more than how much you might win. Start here before any strategy.
Every explainer in this topic answers one question: how do you keep a bad trade, or a bad week, from becoming a disaster? We start with position sizing, then leverage and margin, then what stop orders can and cannot do, and finish with the arithmetic of drawdowns.
The official data is the reason this topic comes first. In a French study of 14,799 active individual investors trading forex and CFDs, 89% lost money over four years [1].
Read the explainers in order if you are new. Position sizing shows how to turn the loss you can accept into a number of units. Leverage and margin explains why a small deposit can control a large position, and why that cuts both ways. Stop-loss orders covers what a stop does when it triggers and why the fill can be worse than the price you set. Drawdown recovery shows why a 50% loss needs a 100% gain to get back to where you started. Risk/reward and win rate shows how the two numbers only make sense together, and margin calls and liquidation explains what happens when an account runs out of collateral.
Each page includes a worked example calculated in code, a table, the mistakes beginners make most often and links to the primary sources behind every number.
More explainers in this topic
Leverage and margin, explained without the hype
Coming soon
Stop-loss orders: what they do and what they can't
Coming soon
Why a 50% loss needs a 100% gain
Coming soon
Risk/reward ratio and win rate, together
Coming soon
Margin calls and liquidation: what happens and when
Coming soon
Questions people ask about this topic
What should a beginner learn first about risk?
How to size a position from the loss you can accept, and why leverage multiplies both gains and losses. Read position sizing first.
Can a stop-loss order protect me completely?
No. A triggered stop becomes a market order and can fill at a worse price, especially in fast markets [2].
Why do so many retail traders lose money?
Regulators point to leverage, costs and inexperience. The CFTC notes that once all fees and financing are counted, about two-thirds of customers at registered forex dealers lost money [3].