Risk management describes a framework which you can use to make sure you only lose what you expect to lose. This framework also determines that amount of profit you plan to generate based on the risk you expect to take. When you define risk management, you should base your financial goals on the amount of money you are planning to risk. Your risk management should be at the trade level, the strategy level, and at your portfolio level.

What is risk?

The risk of trading is the amount of money you are willing to lose. It’s not actually what you lose, it’s what you could lose. You can define risk in many ways. There is market risk, credit risk, operational risk, and systematic risk. Most of the risk you will experience as a trader is market risk.

Most traders assume that the exchange they are trading on will remain operational. If the exchange you are using defaults, you would experience credit risk as there would be no authority to make sure you will get paid on the trades that you currently have open. Operational risk describes a situation where a company does not execute. If you own shares in that company, you could experience operational risk. Systematic risk is the breakdown of the entire system. During September 11, 2011, the world experienced systematic risk.

What is risk management?

Risk management in forex trading and other markets is a process used to minimize risk. You design a framework which will mitigate the amount you could lose. You can do this at all levels, but it should start at the portfolio level. When you allocate capital to your trading venture, you need to determine in advance how much are you willing to risk to achieve your financial goals.  Remember, you get paid to take risks—the greater the risk, the greater the expected reward.

There are risk-free strategies where you can earn a certain return without taking any risk. For example, if you live in the United States you can purchase treasury bills. Three-month bills pay 2.5% annually, and that is backed by the full faith of the United States government. So, unless the US government defaults, you will earn the value of a treasury bill. If you live outside the US and purchase a treasury bill, you will then expose yourself to currency risk.

Once you have determined how much you are willing to lose, you can back into how much you expect to generate. Using a reward to risk ratio of 4:1 is reasonable. This means for every $1 you risk, you should expect to make $4. This does not mean that you need to make $4 on for every $1 you trade, but it’s a good goal.

Risk at the strategy level

Each strategy that you employ should fit into a framework where your ultimate goal is to hit your portfolio goals. You might combine scalping strategies with trend following strategies and even pair trading strategies.

Scalping strategies might win more than it loses, but the amount you make is similar to the amount you gain. If this is the case, then you need to win four times more than you lose, to approximate a $4 to $1 reward to risk. That would mean you need to win 80% of the time and only lose 20% of the time.

You might combine this strategy with a trend following strategy which is a strategy where you might lose more than you win, but the amount that you win is four times as much as when you lose. By combining multiple strategies, you might provide yourself with a better chance of meeting your financial goals.

Risk management at the trade level

Prior to placing a trade, you should have a good idea of how much you plan to lose and should set a mental stop loss. You can then determine where you should take profit. With scalping trades, your reward to risk strategy could be 1:1.  With a trend following strategy, you might set your profits at four times your stop loss level. For example, if you are trying to determine your forex risk with a currency pair, you might take profit when the exchange increases four big figures and stop loss when it falls one big figure. You also might consider a trailing stop loss, that moves up as the market moves higher.


Risk management helps you determine the framework you will use to make money. A key concept is to make sure you cut your losses and let your profits run. You need to break down your risk management at a portfolio level, a strategy level, and the trade level. Be realistic in terms of the amount you are attempting to gain relative to the risk that you assume. Additionally, while market risk is the most likely risk you will encounter, you will also be exposed to credit risks, operational risks, and systematic risks. For traders to be successful, it’s essential that they have realistic currency risk management strategies in place.


All content is provided for your information only.

This article may contain opinions and is not advice or a recommendation to buy, sell or hold any investment. No representation or warranty is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however we have put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.

One Financial Markets expressly disclaims all liability from actions or transactions arising out of the usage of this content. By using our services, you expressly agree to hold One Financial Markets harmless against any claims whatsoever and confirm that your actions are at your sole discretion and risk.

Begin trading today! Create an account by completing our form

Privacy Notice

At One Financial Markets we are committed to safeguarding your privacy.

Please see our Privacy Policy for details about what information is collected from you and why it is collected. We do not sell your information or use it other than as described in the Policy.

Please note that it is in our legitimate business interest to send you certain marketing emails from time to time. However, if you would prefer not to receive these you can opt-out by ticking the box below.

Alternatively, you can use the unsubscribe link at the bottom of the Demo account confirmation email or any subsequent emails we send.

By completing the form and downloading the platform you agree with the use of your personal information as detailed in the Policy.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.3% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Back to top

Office network

One Financial Markets is the trading name of Axi Financial Services (UK) Ltd, a company registered in England with company number 6050593. Axi Financial Services (UK) Ltd is authorised and regulated by the Financial Conduct Authority in the UK (under firm reference number 466201) and the Financial Sector Conduct Authority in South Africa (with FSP number 45784).

The information on this site is not directed at residents of the United States, Belgium, Poland or any particular country outside the UK and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. is owned and operated by Axi Financial Services (UK) Ltd.

Award winning broker
We have been presented with a number of awards that recognise the quality of our service and dedication to our clients :

Best FSA Regulated Broker
Saudi Money Expo

Best Education Product
Saudi Money Expo

Best Broker - Online Trading
IAIR Awards

Best Institutional Broker
Saudi Money Expo

Best FX Services Broker
CN Forex

Top International
FX Broker 2015

Saudi Money Expo

Broker of the Year
Online Trading – Middle East

IAIR Awards

Best Forex
Customer Service 2018

JFEX Awards

We accept the following payment methods: