⚠️ Risk warning: CFDs and leveraged forex are complex instruments with a high risk of losing money rapidly. Most retail accounts lose money. This content is education only, not investment advice or a recommendation.
Professional traders think about what they could lose before what they could win. Good risk management will not make a bad strategy profitable, but bad risk management will ruin a good one.
Risk a fixed percentage
Decide on a small, fixed share of your account to risk on each trade: many traders use 0.5% to 2%, and 1% is a common starting point. At 1%, ten losses in a row (which happens) cost about 10% of the account, not all of it.
Calculate the position size
Position size comes from three numbers: your account balance, your risk percentage and the distance to your stop loss.
Lots = (Balance × Risk %) ÷ (Stop distance in pips × Pip value per lot)
Balance $10,000, risk 1% → you can lose $100. Your stop on EUR/USD is 20 pips away, and one pip on one lot is $10, so one lot would lose $200 at the stop. Position size = $100 ÷ $200 = 0.50 lot.
If the stop had to be 40 pips away, the size would halve to 0.25 lot. The stop decides the size, never the other way round.
Our position size calculator does this for any pair and account currency.
Risk-to-reward and win rate
With a 1:2 risk-to-reward ratio, you can be right only 40% of the time and still come out ahead before costs: 4 wins × 2 − 6 losses × 1 = +2 units. Aim for setups where the target is at least twice the risk.
Rules that protect the account
- Always trade with a stop loss.
- Set a daily loss limit (for example 3%) and stop trading when you hit it.
- Do not add to a losing position.
- Watch correlation: long EUR/USD and long GBP/USD at once is close to doubling one bet.
- Know when big news is due on the economic calendar.
✍️ Quick quiz
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