Topic 4.2.1: Managing Risk in Forex Trading

Without risk management, even the best strategies will fail. Key principles include:

• Never risk more than 1–2% per trade
  Keeps losses manageable and protects capital.
• Use Stop-Loss Orders
  Defines your maximum acceptable loss per trade.
• Maintain Risk-Reward Ratio of at least 1:2
  For example, risking $50 to gain $100 ensures long-term profitability even with a 50% win rate.
• Avoid Over-Leveraging
  Higher leverage increases risk exposure.
• Diversify Positions
  Don’t concentrate all trades on one currency or event.

Effective risk management turns probability into profit over time.