What is Risk Management in Trading?

Risk management in trading is an approach to protect capital, control losses, and ensure long-term survival in the markets. The primary objective is NOT to eliminate losses, which is not possible, but to limit the impact of an unfavourable trade on the overall trading capital.

For a better understanding, let’s check out some common trading risk management strategies:

• Setting a predefined “stop-loss” level.
• Limiting the amount of capital exposed to a single trade.
• Risking no more than 1% of total capital per trade.
• Ensuring potential gains outweigh losses, commonly targeting a risk-reward ratio of at least 1:2 
• Avoiding excessive leverage
• Diversifying exposure where appropriate

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