Risk Management

Proper risk management is the foundation of successful trading. This guide covers essential risk management principles and tools.

Core Principles

1. Never Risk More Than You Can Afford to Lose

• Only trade with capital you can afford to lose entirely
• Don't use funds needed for living expenses
• Consider trading capital as "at risk"

2. Position Sizing

Control your risk per trade:

3. Use Stop-Losses

Always define your exit before entering:

• Stop-Loss - Maximum loss you'll accept
• Take-Profit - Target profit level
• Risk:Reward - Aim for at least 1:2 ratio

Calculating Position Size

The 1% Rule

Risk only 1% of your account per trade.

Position Size = (Account Balance × 1%) / Stop-Loss Distance

Example:

• Account: $10,000
• Risk: 1% = $100
• Stop-Loss: 2% from entry
• Position Size: $100 / 0.02 = $5,000

Adjusting for Leverage

With leverage, your effective position is larger:

Margin Required = Position Size / Leverage

Example:

• $5,000 position at 10x leverage
• Margin Required: $500

Risk Tools in CubeTerminal

Built-in risk limits

Every order is checked client-side before it reaches the exchange, against limits you set in the Risk settings tab:

• Max notional — orders above your dollar cap are rejected; you're warned past 80%
• Fat-finger protection — limit orders priced too far from market (beyond your percentage) are rejected
• Daily loss limit — once your daily PnL hits the limit, trading is disabled; you're warned past 80%
• Max open positions — new positions beyond your cap are blocked
• Max leverage — orders above your leverage ceiling are rejected

These apply to both manual and automated (TWAP/Scale/Chase) orders.

Position Monitoring

The Positions widget shows:

• Current PnL (with optional privacy mode masking)
• Liquidation price
• Margin usage

Order Management

Use the Orders widget to:

• View pending orders
• Cancel a single order or Cancel All

Quick Close

Fast position exit:

• Partial close presets (25%, 50%, 75%)
• Full market close for immediate exit
• Closes route as reduce-only so they can't accidentally flip your position

Risk Scenarios

Scenario 1: Winning Trade

• Entry: $50,000
• Stop: $49,000 (2%)
• Target: $52,000 (4%)
• Risk:Reward = 1:2
• Outcome: +4% profit

Scenario 2: Losing Trade

• Entry: $50,000
• Stop: $49,000 (2%)
• Price hits stop
• Outcome: -2% loss (controlled)

Scenario 3: No Stop-Loss

• Entry: $50,000
• No stop set
• Price crashes to $45,000
• Outcome: -10% loss (uncontrolled)

Common Mistakes

Over-Leveraging

• Using maximum leverage
• Not accounting for volatility
• Liquidation from normal price swings

Revenge Trading

• Trying to recover losses immediately
• Increasing position size after losses
• Emotional decision making

Moving Stop-Losses

• Widening stops to avoid being stopped out
• Hoping price will recover
• Turning small losses into large ones

Over-Trading

• Trading too frequently
• Forcing trades when none exist
• Accumulating fees and slippage

Best Practices

Before Trading

1. Define your risk per trade
2. Calculate position size
3. Set stop-loss and take-profit levels
4. Check news for potential volatility

During Trading

1. Monitor positions regularly
2. Don't move stop-losses further away
3. Take profits at targets
4. Cut losses at stops

After Trading

1. Review your trades
2. Analyze what worked/didn't
3. Adjust strategy as needed
4. Take breaks after losses

Risk Checklist

Before every trade, confirm:

• Position size calculated based on risk %
• Stop-loss level defined
• Take-profit level defined
• Risk:Reward ratio acceptable (≥1:2)
• Leverage appropriate for volatility
• Not over-exposed to single asset
• Emotional state is calm and rational