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Learn Risk Management
How to size positions and limit losses: position size, stop-loss, leverage, margin close-out and drawdown explained, with two calculators.
Most trading mistakes are risk mistakes. This hub explains the core ideas — how much to risk, how to size a position, and what leverage does — and links to calculators.
Start here
- Risk calculator →Estimate the amount at risk on a trade.
- Position size calculator →Turn a risk amount and a stop distance into a size.
- Prop firm lot size calculator →Check a size against a funded account's daily and overall loss limits.
- How to trade gold →Risk management in a worked process.
- Risk disclosure →The main risks of CFDs, forex, gold and oil.
Key terms in plain language
- Risk per trade
- The amount you are prepared to lose on one trade if your stop is hit, often expressed as a percentage of your account. There is no universally correct figure; many traders cap it at a small fixed percentage.
- Position size
- How large your trade is. A common approach is: amount risked divided by the distance to your stop, converted into units or lots.
- Stop-loss
- An order to close a position at a set price to limit a loss. In fast markets or over gaps it can fill at a worse price (slippage).
- Leverage
- Exposure larger than your deposit. It magnifies gains and losses. The FCA limits leverage on CFDs sold to UK retail clients to between 30:1 and 2:1 depending on the underlying asset.
- Margin close-out
- When your funds fall to a set share of the margin needed, the broker closes positions. The FCA requires UK firms to close out retail CFD positions when funds fall to 50% of the margin needed.
- Negative balance protection
- A protection that guarantees a client cannot lose more than the total funds in their account. The FCA requires it for retail CFD clients of UK firms; other regions and brokers differ, so check the terms.
- Risk–reward ratio
- The potential gain compared with the amount risked on a trade. A high ratio does not make a trade good if the probability of success is low.
- Drawdown
- The fall from a peak in account value to a later low. Limiting risk per trade helps limit drawdown.
Related tools and pages
Frequently asked questions
How much should I risk per trade?
There is no universal answer. Many traders keep risk per trade to a small fixed percentage of their account so a losing run does not do serious damage. Choose a level that fits your situation and test it on a demo account.
Does a stop-loss guarantee my maximum loss?
No. In fast markets or over gaps a stop can be filled at a worse price than set (slippage), so the loss can exceed the planned amount.
Why does leverage matter?
Leverage lets you control a larger position than your deposit, which magnifies gains and losses alike. Regulators such as the FCA limit it for retail CFD clients because of the risk.
Sources (1)
ShowHide
Official or primary sources used for the facts above. Figures and terms change, so check the source before acting on them.
- Financial Conduct Authority (UK) — Contract for differencesLeverage limits, margin close-out, negative balance protection and risk warnings for retail CFDs.Accessed
Written by Volodymyr Kravchenko from official sources. See the methodology.
This content is provided for educational purposes only and is not investment advice. Trading involves risk, and past performance does not guarantee future results. Affiliate relationships may exist. Always conduct your own independent research before making financial decisions.