Risk Management
Risk Management
Strategies to protect trading capital from excessive losses.
Full Definition
Risk management encompasses all techniques used to limit potential losses in trading. This includes setting stop losses, proper position sizing, diversification, and maintaining a favorable risk-reward ratio. Effective risk management is the foundation of long-term trading success.
Example
A trader risks only 1% of their account per trade, uses stop losses on every position, and aims for at least 1:2 risk-reward ratios.
Related Terms
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