Understanding and managing risk is the foundation of successful trading. Protect your capital with proven techniques.
Trading forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. Before trading, you should carefully consider your investment objectives, experience level, and risk appetite.
The possibility exists that you could sustain a loss of some or all of your initial investment. You should not invest money that you cannot afford to lose. Leverage amplifies both potential profits and potential losses.
Professional traders never risk more than they can afford. These strategies help protect your trading capital.
Never risk more than 1-2% of your total account balance on a single trade. This ensures that no single loss can significantly damage your portfolio.
Example: With a £10,000 account and 1% risk per trade, your maximum loss per trade should be £100. Adjust your lot size and stop-loss distance accordingly.
Always use a stop-loss on every trade. A stop-loss automatically closes your position at a predetermined price, limiting your downside risk.
Best practice: Place stop-losses based on technical levels (support/resistance) rather than arbitrary pip amounts. Never move your stop-loss further from entry to avoid being stopped out.
Target a minimum risk-reward ratio of 1:2 or higher. This means your potential profit should be at least twice your potential loss on every trade.
Why it matters: With a 1:2 ratio, you only need to win 33% of your trades to break even. A 50% win rate with 1:2 risk-reward produces consistent profits over time.
Develop and follow a written trading plan that defines your entry criteria, exit strategy, position sizing rules, and maximum daily/weekly loss limits.
Include: Which markets to trade, timeframes, entry triggers, stop-loss placement rules, take-profit targets, maximum positions open, and conditions to stop trading for the day.
Spread your risk across multiple instruments and asset classes. Avoid concentrating all positions in correlated markets (e.g., EUR/USD and GBP/USD often move together).
Use CFDs to hedge existing positions. For example, if you hold UK shares and fear a short-term decline, you could short the FTSE 100 CFD to offset potential losses.
Set a maximum weekly or monthly drawdown limit (e.g., 10% of account). If reached, stop trading and review your strategy before continuing.
We provide several built-in protections to help manage your risk when trading with us.
Using maximum available leverage on every trade. High leverage magnifies losses and can wipe out accounts quickly. Start with lower leverage until you are consistently profitable.
Trading without a stop-loss hoping the market will reverse. This is the fastest way to blow an account. Always define your maximum loss before entering a trade.
Increasing position size after a loss to try to recover quickly. This emotional response leads to larger losses. Stick to your plan regardless of recent results.
Trading with money needed for rent, bills, or essential expenses. Only trade with capital you can afford to lose completely without impacting your financial wellbeing.
Apply these risk management techniques on a free demo account before trading with real money.