What Is Risk Management in Trading?

Why Risk Management Matters

Most traders focus on finding the perfect entry. But the difference between profitable and unprofitable traders almost always comes down to how they manage risk.

The 1% Rule

Never risk more than 1% of your account on a single trade. This means if you have a $10,000 account, your maximum loss on any trade should be $100.

How to Calculate Position Size

• Determine your stop loss distance in pips
• Calculate the dollar value per pip for your pair
• Divide your max risk ($100) by the dollar value per pip × stop distance

The goal of risk management isn't to avoid losses — it's to survive them.

Common Mistakes

1. Moving your stop loss — once it's set, leave it
2. Revenge trading — taking bigger positions after a loss
3. No stop loss at all — hoping the market turns around

Master risk management first. Everything else follows.