Testnet

Risk management

Decide the worst case before you enter: a small share of your account, a stop, and a size to match.

6 minLesson 1 of 33 questions at the end

Key ideas

  1. 1Many traders risk 0.5% to 2% of their account per trade. A run of ten losses then costs a tenth to a fifth of it, not all of it.
  2. 2Risk is what you lose if the stop is hit, not the size of the position or the margin.
  3. 3Compare what you could gain at your target with what you lose at your stop. A target twice as far as the stop is 2R.
  4. 4Losses compound against you: the deeper the drawdown, the harder the climb back.

Risk is what you lose at the stop

The size of a position and the margin behind it are not your risk. Your risk is what you lose if the stop loss is hit. Decide that first, as a small share of the account, and the rest follows.

Formula
Risk per trade = account × risk %
Many traders keep it between 0.5% and 2%.
Worked example: Risking 1% of a $2,000 accountBTC at an example price
At risk
$20
Entry and stop
100,000 and 98,000 (−2%)
Position size
$913.24
Margin at 5x
$182.65
Loss if the stop is hit
−$20.00

A 2% stop on about $900 loses about $18; the fees in and out make up the rest of the $20.

Why small

Losing streaks and drawdowns

Small, fixed risk is what lets an account survive the losing runs every trader has.

You lose50%
Lost
−50%
Needed back
+100%

After losing 50%, what is left has to grow 100% just to get back to the start.

After 10 losing trades in a row
90%1% a trade
82%2% a trade
60%5% a trade
35%10% a trade
6%25% a trade

Ten losses in a row happen to almost every trader at some point. At 1% a trade you keep about 90% of the account; at 25% a trade, about 6%.

Reward against risk

Measure your target in units of your risk, called R. A stop $400 away and a target $1,000 away is 2.5R.

Targets at 1R
  • You need to be right more than half the time, after fees, to come out ahead
Targets at 2R
  • Right one time in three is about even, before fees
  • More room for being wrong

A far target is reached less often, so this is a balance, not a trick. Fees and funding come off every trade either way.

Plan a trade

Size by risk
BTC at an example priceEntry 100,000
Account$2,000
Risk per trade
Stop distance2.0% → 98,000
Leverage5x
Side
At risk
$20.00
1% of $2,000
Position size
$913.24
Margin used
$182.65
At 5x
Loss at the stop
−$20.00
Fees in and out at 0.095% each

A $913 position with its stop 2.0% away loses about $20.00 if the stop is hit. Change the leverage: the size and the loss stay the same, only the margin moves.

Watch what moves together

Common mistakes

  • Risking more on trades that “feel certain”. The ones that feel certain lose too.
  • Several positions that all move together, like longs on BTC, ETH and SOL. They can all hit their stops at once.
  • No plan for a bad week. Decide in advance when you stop trading for the day.

Check yourself

Question 1 of 3

Your account is $2,000 and you risk 1% per trade. What do you lose if the stop is hit?

Try it in Lance

Size by risk in the order panel and add a take profit: Lance shows the reward against the risk.

Plan a trade by risk
Up nextLesson 2 of 3Your own limitsRules you set on yourself in Lance: a daily loss limit, a leverage cap and more, that hold you to your plan.Next lesson
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Lance Learn is education, not advice. Examples use made-up or rounded numbers and say so; nothing here tells you what to trade.

Trading perpetual futures with leverage is high risk. Prices can move fast and you can lose all the money you put in. Lance is software: it does not give investment advice, manage money or trade on anyone’s behalf. Trades are executed on Hyperliquid, a third-party exchange that is not affiliated with Lance. Lance is not available to persons in the United States, the United Kingdom and sanctioned countries.