Forex Risk Management: The Maths of Survival
Entries get the attention; risk management decides who is still trading in a year.
The one rule
Never risk more than 1–2% of your account on a single trade. Everything else follows from this. At 1% risk, twenty consecutive losses — a streak that happens to every strategy eventually — costs 18%. At 10% risk, the same streak costs 88%. The position size calculator turns this rule into a lot size in seconds.
Drawdown maths
| Drawdown | Gain needed to recover |
|---|---|
| 10% | 11% |
| 20% | 25% |
| 30% | 43% |
| 50% | 100% |
| 75% | 300% |
Losses compound against you. Keeping drawdowns under 20% is the difference between a bad month and a lost account.
Stop losses
- Always use one, placed in the platform, not in your head.
- Place it where the trade idea is wrong — beyond the level or swing — then size the position to fit. Never move the stop to fit a size you want.
- Use ATR to check it is outside normal noise: on the 1H, a stop under 1× ATR(14) will be hit by randomness.
- Never widen a stop on a losing trade. Moving it to break-even after 1R in profit is fine; trailing behind 4H swings is better.
Reward-to-risk
A 2:1 ratio means you can lose 60% of your trades and still make money. Target the next key level and skip trades that do not offer at least 1.5:1 — the P&L calculator shows the ratio instantly.
Correlation risk
Long EUR/USD, long GBP/USD and short USD/CHF is not three trades — it is one big short-dollar trade with 3% at risk. Check the heat map: if your open positions all depend on the same currency moving, cut sizes accordingly. Total open risk should rarely exceed 4–5%.
Leverage
Leverage is not risk; position size is. But high leverage makes oversized positions possible. Whatever your broker allows, keep used margin below 20% of equity (see the margin calculator).
Rules that keep traders alive
- 1% per trade, 5% total open risk.
- Daily loss limit of 3%: hit it, stop for the day.
- Weekly loss limit of 6%: hit it, stop for the week and review the journal.
- No trades in the 15 minutes around red-flag news unless news trading is the strategy.
- No revenge trades, no doubling down, no averaging into losers.
- Withdraw profits regularly; an account that only grows never feels real.
Frequently Asked Questions
What is the 1% rule in forex?
Risk no more than 1% of your account balance on any single trade. With a $10,000 account, that is a $100 maximum loss per trade, whatever the lot size or stop distance.
What is a good risk-reward ratio in forex?
2:1 is the professional standard. Anything below 1:1 needs a very high win rate to be profitable.
How many trades should I have open at once?
As many as your total risk allows — typically 3–5 at 1% each — after accounting for correlation between them.