Table of Contents
Rule 1: Never Risk More Than 2% Per Trade
This is the foundational rule of money management. On any single trade, risk no more than 2% of your total account balance. On a Rs 1,00,000 account, your maximum loss per trade is Rs 2,000. This rule ensures that even a string of 10 consecutive losses (which happens to every trader eventually) only draws down your account by 20% — recoverable with disciplined trading.
Many professional traders use 1% or even 0.5% risk per trade. The lower the risk per trade, the smoother your equity curve and the less emotional impact each trade has. For beginners, 1% is recommended until you have a proven track record.
Rule 2: Always Use Stop Losses
Every trade must have a stop loss placed at the time of entry. No exceptions. A trade without a stop loss has unlimited risk — one unexpected news event or flash crash can wipe out months of profits in minutes.
Your stop loss should be based on technical analysis (below support, below an order block, or based on ATR), not on an arbitrary dollar amount. Place the stop where your trade thesis is invalidated. Then calculate your position size to keep the loss within your 2% limit.
Rule 3: Know Your Risk-Reward Before Entry
Before entering any trade, calculate the exact risk-reward ratio. If the potential reward is not at least 1.5x the risk, skip the trade. This simple filter eliminates the majority of low-quality trades that erode your account over time.
Mark your entry, stop, and target on the chart before clicking buy or sell. If you cannot identify a clear target at a reasonable distance, the trade lacks a defined edge.
Rule 4: Set Daily Loss Limits
Set a maximum daily loss of 3% of your account. When this limit is hit, your trading day is over. Close the platform and do not return until the next session. This rule prevents revenge trading spirals that can destroy your account in a single day.
Some traders set weekly limits too — 5-6% maximum weekly loss. If hit, take the rest of the week off. Your capital will be there on Monday. Your edge plays out over months, not days.
Rule 5: Scale Down During Drawdowns
When your account is in a drawdown exceeding 5%, reduce your position sizes by 50%. Trade half-size until you return to breakeven or high-water mark. This accomplishes two things: it slows the drawdown and it reduces the psychological pressure that leads to poor decisions.
This is counter-intuitive — after losses, you want to make it back faster, not slower. But mathematics shows that reducing risk during drawdowns preserves capital and creates a more sustainable recovery.
Rules 6-10: Advanced Money Management
Rule 6: Never add to a losing position. Averaging down is a strategy for investors buying value stocks, not for leveraged forex traders. Each additional position adds more risk to an already failing trade thesis.
Rule 7: Take partial profits. When a trade reaches 1x risk in profit, take 50% off and move your stop to breakeven. This guarantees a risk-free trade on the remaining position.
Rule 8: Separate trading capital from savings. Only trade with money you can afford to lose completely. Trading with your emergency fund or rent money creates unbearable pressure that destroys discipline.
Rule 9: Compound gradually. When your account grows, increase position sizes proportionally. A 10% account growth means your risk per trade increases by 10%. Do not jump from trading 0.1 lots to 1.0 lots after one good month.
Rule 10: Track everything. Record every trade, review weekly, and know your exact win rate, average win, average loss, and profit factor at all times. You cannot manage what you do not measure.
Money Management Styles Compared
| Approach | Risk Per Trade | Recovery After 10 Losses | Suitable For |
|---|---|---|---|
| Conservative | 0.5% | ~5% drawdown | Large accounts, beginners |
| Standard | 1-2% | 10-20% drawdown | Most traders |
| Aggressive | 3-5% | 30-50% drawdown | Small accounts, experienced only |
Money management rules only work if your broker doesn't add hidden costs. Exness shows you exact spread, commission, and swap before every trade. No surprises means your risk calculations stay accurate.
Trade with Transparent CostsFrequently Asked Questions
What is the most important money management rule?
Never risk more than 2% of your account on a single trade. This single rule prevents catastrophic losses and ensures your account can survive the inevitable losing streaks that every trader experiences.
How do I recover from a 20% drawdown?
Reduce position sizes by 50%, focus on high-probability setups only, and trade your way back gradually. A 20% drawdown requires a 25% gain to recover — achievable with consistent, disciplined trading over 2-3 months.
Should I use the same lot size for every trade?
No. Your lot size should be calculated based on the stop loss distance for each individual trade. A trade with a 20-pip stop requires a larger position than one with a 50-pip stop to risk the same percentage of your account.
Is 1% or 2% risk per trade better?
1% is better for beginners and larger accounts. 2% is acceptable for experienced traders with proven strategies. The key is consistency — pick one percentage and stick with it rather than changing based on confidence levels.