Risk management
Risk management in trading is limiting how much you can lose, through position sizing, stop-losses, diversification and avoiding too much leverage.
A common rule of thumb is never to risk more than 1% to 2% of your account on a single trade.
Related terms
- Stop-loss order: A stop-loss order sells automatically once a stock falls to a set price, to cap how much you can lose.
- Diversification: Diversification is spreading money across many different investments so a loss on one has less effect on the whole portfolio.
- Leverage: Leverage is using borrowed money to increase the size of an investment, which magnifies both gains and losses.
- Position sizing: Position sizing is deciding how much money to put into a single trade, usually based on how much you're willing to lose if it goes wrong.
Guides
Practise with $10,000 in play money
Free. No real money involved.
For learning only. This isn't financial advice.