Key Risk Management Concepts

a. Position Sizing:

• Description: Position sizing refers to determining the appropriate amount of capital to allocate to each trade based on risk tolerance and account size.
• Risk Percentage: The percentage of your total account balance you are willing to risk on a single trade (commonly 1-2%).

b. Leverage:

• Description: Leverage allows traders to control larger positions than their account balance would typically allow. While it can amplify profits, it also increases risk.
• Safe Use: Always use leverage cautiously. A higher leverage ratio increases the potential for larger losses, which can lead to margin calls.

c. Stop Loss and Take Profit Orders:

• Stop Loss: A stop-loss order automatically closes a trade at a predetermined price to limit potential losses. It acts as a safety net for traders.
• Take Profit: A take-profit order automatically closes a trade at a specified profit level, helping secure gains and prevent emotional decision-making.