Forex Risk Management: Protecting Your Capital
Risk management is the single most important skill in trading. Without it, even the best strategy will eventually blow your account.
The Golden Rules
Rule 1: Never Risk More Than 1-2% Per Trade
If you risk 2% per trade, you can have 10 consecutive losses and still have 82% of your account intact. Risk 10% per trade, and 10 losses leaves you with only 35%.
| Risk Per Trade | After 5 Losses | After 10 Losses |
|---|---|---|
| 1% | 95.1% | 90.4% |
| 2% | 90.4% | 81.7% |
| 5% | 77.4% | 59.9% |
| 10% | 59.0% | 34.9% |
Rule 2: Always Use a Stop Loss
A stop loss limits your maximum loss on any single trade. Never trade without one.
Types of stop losses:
- Fixed pip stop — e.g., 50 pips below entry
- ATR-based stop — dynamic, adjusts to market volatility (used by our EAs)
- Structure-based stop — below/above key support/resistance
- Percentage-based stop — when loss reaches X% of account
Rule 3: Maintain Positive Risk-Reward Ratio
Your average winning trade should be larger than your average losing trade.
| Risk:Reward | Win Rate Needed to Break Even |
|---|---|
| 1:1 | 50% |
| 1:1.5 | 40% |
| 1:2 | 33% |
| 1:3 | 25% |
With a 1:2 risk-reward ratio, you only need to win 33% of your trades to break even.
Position Sizing Formula
Position Size = (Account Balance × Risk %) / (Stop Loss in Pips × Pip Value)
Example:
- Account: $2,000
- Risk: 2% ($40)
- Stop Loss: 40 pips
- Pip Value (EUR/USD, standard lot): $10
Position Size = $40 / (40 × $10) = 0.1 lots (mini lot)
Practical Risk Management Checklist
Before every trade, ask:
- How much am I risking in dollars? Is it within 2%?
- Where is my stop loss? Is it at a logical level?
- What is my risk-reward ratio? Is it at least 1:1.5?
- How many positions do I have open? Total risk?
- Am I trading during a high-risk event (news, low liquidity)?
Automated Risk Management
One advantage of Expert Advisors is consistent risk management execution. Our EAs enforce:
- SteadyPips: 2% risk per trade, ATR-based stops, max 3 concurrent trades
- GridMaster: Equity protection, drawdown limits, maximum exposure caps
Humans often override their own risk rules due to emotion. EAs follow them every time.
Get our free EAs with built-in risk management →
This article is for educational purposes only and does not constitute financial advice. Trading forex carries significant risk of loss.