Position Sizing
Position sizing is the calculation of how many units (lots, shares, contracts) of an asset you should trade, based on your defined risk tolerance and the distance to your stop-loss.
Practical Starting Capital
Practical starting capital is the amount of money that allows you to implement a sound risk management strategy using appropriate position sizes without being overly exposed to market fluctuations or margin calls.
Reward
Reward, in the context of trading, refers to the potential profit or expected return from a trade or investment.
Risk
In financial markets, risk is fundamentally a measure of uncertainty regarding a trade’s outcome.
Risk Mitigation
The primary motivation for utilizing safe haven assets is risk mitigation, acting as a buffer to preserve capital during periods of heightened uncertainty.
Risk Per Trade
Risk per trade is the principle of never risking more than a small percentage (e.g., 0.5% to 2%) of your total trading capital on any single trade.
Risk-On/Risk-Off Sentiment
Risk-on sentiment describes periods when market confidence is high and investors are willing to allocate capital to speculative investments, whereas risk-off sentiment occurs when fear drives investors to liquidate risky holdings.
Slippage
Slippage is the phenomenon where standard stop-losses do not guarantee execution at the exact specified price in volatile markets.
Stop-Loss Order
A stop-loss is a risk management tool typically placed just below a preceding intraday swing low for a long position or just above a preceding intraday swing high for a short position.
Systemic Risk
Systemic risk represents the risk that the failure of one financial institution or a significant market event could trigger a cascading collapse across the entire financial system.