Risk management
Forex Risk Management: A System That Protects Capital
Build risk limits per trade, day and portfolio while handling correlation and losing streaks.
Answer first
What you should remember
- Set limits per trade, per day and across open positions.
- Correlated trades belong in one risk bucket.
- Staying solvent matters more than recovering today's loss quickly.
Risk before signal
Set acceptable percentage or cash loss before seeing a setup. Increasing risk because a trade looks strong turns a system into an emotional decision; even high-quality setups experience losing streaks.
Three risk limits
Use a per-trade limit, a daily stop after defined losses and a portfolio cap across all open positions. Five individually small trades can otherwise become one hidden oversized bet.
Correlation and repeated exposure
Long EURUSD, long GBPUSD and short USDCHF can be three versions of one weak-dollar bet. Treat their shared scenario as one exposure because one US release may hit all of them.
Drawdown and losing streaks
As equity falls, the percentage gain needed to recover increases. Reduce size after a drawdown threshold and identify whether execution or market regime changed instead of multiplying positions.
Direct answers
Frequently asked questions
How much should I risk per trade?
It depends on the plan and tolerance, but it should be small enough for a losing streak not to threaten the account.
Is a stop loss enough?
No. The stop defines distance; position size defines the money actually at risk.