Trading and risk
Risk management in trading: how much to risk per trade
The 1-2% rule, a position size calculation on EUR/USD and a table that shows why drawdowns are so hard to win back.
Stop loss: what it means
A stop loss is an order placed in advance to close a trade if the price reaches a set loss level.
A stop loss is an instruction to the broker to close a position automatically if the price reaches a specified level. It is set before entering a trade, so you know your maximum loss in advance.
Position size is calculated from the distance to the stop loss: if you are prepared to risk 1% of your account and the stop loss is far from the entry price, the position must be smaller.
A stop loss does not guarantee an exact closing price: after a sharp price jump, for example after a weekend, the trade may close at a worse price.
In detail, with examples: Risk management in trading: how much to risk per trade
Related terms
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Trading and risk
Leverage, margin call and stop-out: how you can lose your whole deposit in a day
Calculations for a USD 1,000 deposit from 1:2 to 1:500 leverage, when a stop-out hits, ESMA limits, gaps and negative balance protection.