Learn About risk management
what is risk management?
Risk management encompasses the strategy of minimizing potential losses incurred from your trades. This involves establishing realistic objectives, delineating exit points, and employing suitable tools to safeguard profits while constraining losses. Effective risk management equips you to navigate market uncertainty and volatility, steering clear of impulsive decisions driven by emotions. A prevalent method for mitigating risk is through the use of stop-loss orders, which automatically close a position when the price reaches a specified level. For instance, if you purchase EUR/USD at $1.09354 and set a stop-loss at $1.09342, you confine your potential loss to $12 per standard lot, where 1 lot equals 100,000 units.
understand trade risk with Trading-Locus
Calculator Tip 1
Trade risk is the difference between market price and stop loss. So if you buy a EUR/USD at 1.09354 and your stop loss is 1.09342, the difference is 1.2 pips, assuming pip value is $10 so:
Trade risk to type is 0.00012
Possible loss in $ = 1.2 * $10 = $12
Position sizing
Determining the appropriate allocation of capital for each trade is known as position sizing. This decision is influenced by factors such as your risk tolerance, trading goals, and the size of your account. Position sizing is a key tool for managing exposure to market fluctuations and achieving portfolio diversification. One widely used method for calculating position size is the percentage risk method. In this approach, a fixed percentage of your account is risked on each trade. For instance, if you have a $5000 account and choose to risk 20% per trade, your calculated position size would be $1000
