Personal risk management plan

What a risk management plan is

A risk management plan is a short written document that sets how much you can lose, in which situations you stop trading, and when you change the rules. It sits inside a wider trading plan, which also covers what you trade and why.

The plan does not make trades profitable. It limits the damage when trades go wrong, which they will. Leveraged CFD and forex trading can lose money fast, and a plan only works if you follow it when it is uncomfortable.

Write the plan before you trade, not during a losing day. If you are new, the ideas behind each line are explained in Risk management basics.

Before you start: the legal position in Pakistan

Know the rules that apply to you. Per the SECP, Securities and Exchange Commission of Pakistan (SECP), with trading in listed securities and commodities only via SECP-licensed securities and futures brokers. In addition, per the SBP, remitting foreign exchange to overseas forex/margin/CFD platforms is not allowed through any payment channel (FERA s.5(1)), and per the SECP, offshore platforms have no Pakistani licence or oversight and offer no legal protection or recourse. Read Law and regulators before you put money anywhere. No risk plan replaces a legal check.

The trading plan template

Copy this table into your notes or trading journal and fill in every blank. Leave nothing as "I'll decide later".

To turn the percentages into lot sizes and amounts, use the tools on Calculators. Any worked numbers should come from there, with your own balance and stop distance, not from someone else's example.

Limit per trade

Risk per trade is the amount you lose if the stop loss is hit. It is set by position size and stop distance together, not by the lot size alone.

• Decide the percentage of balance you accept losing on a single trade.
• Set the stop loss first, based on the chart, then size the position to fit the risk. See Stop loss placement and Position sizing.
• Include spread and commission in the loss, because they are real costs.
• If the stop has to be so wide that the size becomes too small to trade, skip the trade.

How to choose the percentage is covered in Risk per trade. A stop loss can be filled at a worse price during gaps or fast markets, so the real loss can be larger than planned.

Limit per day and per week

A daily loss limit stops a bad day from turning into a bad month. When the limit is reached, you close the platform for the rest of the day, without exceptions.

• Count closed losses and the current floating loss together.
• Set a weekly limit as well, so several bad days in a row also trigger a pause.
• Do not raise position size to "win it back". That is the most common way losses grow.

Details and variations are on Daily loss limits and Trading psychology.

Limit per instrument group

Positions that move together behave like a single larger position. Two trades on pairs that both contain USD, or gold and silver at the same time, can double your exposure to the same move.

Group your instruments and cap the open risk per group:

• Major currency pairs sharing a currency, for example several USD pairs.
• Metals, such as XAUUSD and silver. See Metals.
• Stock indices, such as NAS100 and US30. See Stock indices.
• Energies and crypto CFDs, which can move sharply and gap.

How to measure this overlap is explained in Correlation risk.

Leverage cap

Leverage lets you open a position larger than your money. The leverage offered by an account is a ceiling, not a target. What matters is effective leverage: total position value divided by your equity.

• Set your own maximum effective leverage and check it before each new trade.
• Keep enough free margin so that normal price moves do not push the account toward a margin call or stop-out, where positions are closed automatically.
• Lower the cap before major news and weekends.

See Effective leverage, Avoiding margin calls, Trading news risks and Gap and weekend risk.

Review triggers

Review triggers are events that force you to stop and check the plan before trading again. Write them down in advance:

• The weekly loss limit is reached.
• Drawdown from the account peak passes the level you set. See Drawdown and Drawdown recovery.
• A run of losing trades longer than you wrote down as normal.
• You broke a rule, even if the trade made money.
• Your strategy, instruments or account type changed.
• A fixed calendar date for a routine review, chosen by you.

During the review, compare your journal with the plan. Check whether your win rate and average reward still support your risk level using Break-even win rate and Trading expectancy. Trying the revised plan on a demo account before real money is a sensible step.

Frequent questions

Is a risk management plan the same as a trading plan?

No. A trading plan covers what you trade, entries and exits. The risk management plan is the part that limits losses. A full trading plan template should contain both.

What percentage should I risk per trade?

There is no correct figure for everyone. It depends on your capital, strategy and tolerance for drawdown. Use Risk per trade and the calculators to test your own figures.

Does following the plan guarantee profit?

No. A plan limits how much you can lose under normal conditions. It does not make a strategy profitable, and gaps or slippage can still cause larger losses.

Can I change the plan in the middle of a trading day?

Change it only at a review, not while positions are open or after a loss. Rules changed under pressure usually make risk larger.

Where do I record whether I followed the plan?

In a trading journal. Note each rule break along with the trade, so your reviews are based on facts.