Forex Risk Management: Protect Your Capital
Most traders fail not from bad entries but from poor risk control. These are the rules that keep you in the game.
The 1% rule
Risk no more than 1–2% of your account equity on a single trade. On a $1,000 account that is $10–$20 of risk per trade — small enough that a streak of losses is survivable and you live to trade another day.
Position sizing from stop distance
Size the position so that the distance from entry to stop-loss equals your planned risk. A wider stop needs a smaller position. This keeps dollar risk constant regardless of where you place the stop.
Use stops, never 'hope'
A stop-loss is a pre-committed exit; 'I'll close it when it comes back' is how small losses become account-ending ones. Set the stop when you enter, then leave it.
Correlation and over-leverage
Five EUR/USD trades are not five diversifications — they are one bet. Avoid stacking correlated positions, and use the lowest leverage that still lets you size sensibly.
Related glossary terms
New to the jargon here? These plain-English definitions will help.
