Forex Risk Management: The Basics Before Any Trade

In currency trading, nobody controls where prices go next. What can be controlled is how much is at stake when they move the wrong way. That is what risk management is about. The ideas below are general principles, not a strategy or a recommendation to trade.

Decide the risk per trade

Many traders set a limit on how much of their account they are prepared to lose on any single trade, keeping it small so that a run of losses doesn’t empty the account. Whatever the figure, the point is to decide it in advance, calmly.

Know your exit before you enter

An exit point — often placed as a stop-loss order — is where the idea behind the trade is proved wrong. Setting it before opening the trade avoids decisions made in the heat of a losing position. Note that stops are not guaranteed in fast markets; see slippage.

Size the position from the two

With a risk limit and an exit point, position size follows: the distance to the exit in pips, multiplied by the pip value, should stay within the limit. Our guides to lot sizes and margin explain the parts.

Treat leverage with caution

High leverage magnifies every move. Using less than the maximum available leaves more room for being wrong.

Watch for hidden doubling

Positions in pairs that tend to move together can add up to more risk than they appear to, because a single event may move them all the same way.

Be aware of scheduled news

Major data releases can cause sharp moves and wider spreads. Checking the economic calendar is a simple habit.

Keep records

A trading journal shows whether rules are actually being followed — and a written trading system makes them easier to follow.

Educational content only. Currency trading involves a high risk of loss and is not suitable for everyone.