What is risk management in trading?

Risk Management Basics

Risk management is the process of identifying, analyzing, and controlling potential losses in your trading. It's often considered the most important skill for long-term success.

Key Principles

• Never risk more than you can afford to lose
• Use stop-loss orders to limit downside
• Diversify across different assets
• Size positions appropriately

Position Sizing

A common rule is to risk no more than 1–2% of your portfolio on any single trade.

Example: With a $10,000 portfolio, risking 1% means your maximum loss per trade is $100.

Stop-Loss and Take-Profit Orders

A stop-loss automatically closes your position if the price drops to a specified level, limiting your loss.

A take-profit automatically closes your position when the price reaches your target level.

Trading Game supports both stop-loss and take-profit orders so you can plan your exits in advance.

Risk/Reward Ratio

Before entering a trade, consider the potential reward versus the potential risk. Many traders aim for at least 2:1 (potential profit is 2× potential loss).