Money Management
21 articles
How to protect your account and survive the bad streaks: risk per trade, leverage, risk-reward, stop-loss and drawdown, explained with worked examples.
Money Management: The Skill That Keeps Traders in the Game
Survival in trading comes from how you manage risk, not from how often you predict the market correctly.
What is a pip and how do you calculate pip value?
A pip (percentage in point) is the smallest standardized unit of price movement in a currency pair, typically the fourth decimal place (or second for JPY pairs). Calculating pip…
What is the spread in forex?
The spread is the gap between the buy and sell price — the built-in cost of every trade, and the reason a position starts slightly in the red the moment you open it.
How do you calculate profit and loss on a forex trade?
To calculate profit or loss, first determine your trade's pip value in the quote currency. Then, multiply this pip value by the number of pips gained or lost. Finally, convert…
What is leverage in forex?
Leverage in forex allows traders to control a much larger position in the market with a relatively small amount of their own capital, essentially borrowing funds from their…
How do you calculate the margin on a forex trade?
Margin is the collateral held by your broker to keep a position open, calculated by dividing the trade's notional value by your account's leverage…
How much should you risk per trade?
To safeguard your capital and ensure long-term survival in the forex market, the 1% rule is the right default: risk no more than 1% of your account on any single trade. This disciplined…
How do you calculate your position size?
To calculate your position size, first determine your maximum acceptable monetary risk per trade (e.g., 1-2% of your account). Then, divide this…
Position Sizing for Volatile Markets: The ATR Method Most Traders Skip
Most traders obsess over entries and ignore the decision that controls risk: position size. How to size to volatility with the ATR method — not to hope.
Where should you place your stop-loss?
Your stop-loss should be strategically placed at a logical price point where your initial trading premise is invalidated, typically just beyond a key technical support or…
Trailing stops: when do they protect a trade and when do they cut it short?
A trailing stop follows price and never moves back. Set the distance from volatility rather than a round number, and know what it really does: it does not maximise the winner, it protects it.
What is the risk-reward ratio?
The risk-reward (R:R) ratio is a crucial metric comparing your potential profit to your potential loss on any given trade. Expressed as X:1, where '1' represents your defined risk…
What is drawdown in trading?
Drawdown represents the peak-to-trough decline in a trading account over a specific period, measuring the percentage loss from its highest equity point to its lowest before a new…
Risk of ruin: the math that turns $500 into zero
Chasing fast returns doesn't just feel risky — the math of ruin makes a blown account nearly certain. Why survival, not speed, is a trader's real first job.
Why does almost nobody make money day trading?
Between 67% and 97% of intraday traders lose money. The cause is not that markets are unpredictable: the gross result hovers around zero and what sinks it is cost, which scales with frequency.
Is forex a zero-sum game?
The accounting is, trade by trade. The intent is not. 42% of volume is funding swaps and 2025’s growth came from hedging — but among those who speculate, once costs are in, the game is negative-sum.
What is a funded trading account and how does it work?
A funded trading account lets you trade a prop firm's simulated account in exchange for a share of the profits, after passing an evaluation with strict risk rules. It isn't free money — it's a money-management exam.
What is a managed account (PAMM/MAM)?
A managed account delegates your trading to a manager who runs a pooled fund; profits and losses are shared pro-rata by each investor's capital. The risk stays yours.
