Capital Preservation
The principle of protecting trading capital above all else — because you cannot trade without capital, survival is the first objective.
Capital preservation is the philosophy that staying solvent is more important than maximising returns. A trader who loses 50% of capital needs a 100% return to recover. A trader who never loses more than 15–20% in any drawdown stays in the game long enough for the edge to manifest.
Preservation-first traders size down aggressively in losing streaks, refuse to double down on losing trades, and treat a losing month as data rather than a reason to take bigger bets.
Related Terms
Black Swan
An extreme, unpredictable, high-impact event that falls outside the range of normal expectations and is rationalised as predictable only in hindsight.
IntermediateDrawdown
The peak-to-trough decline in account equity from a high point to the subsequent low before a new high is reached.
BeginnerGap Risk
The risk that a market reopens far from its prior close — jumping past your stop — so the actual exit is much worse than the level you set.
IntermediateMargin Call
A broker demand to deposit more funds immediately because account equity has fallen below the required maintenance margin level.
BeginnerMoney Management
The set of rules governing how capital is allocated, how large positions are, and how losses are limited across a portfolio of trades.
BeginnerRisk Capital
Money explicitly set aside for speculation that the trader can afford to lose in its entirety without affecting their financial wellbeing.
BeginnerRisk of Ruin
The statistical probability that a trader will lose enough capital to be forced out of trading entirely, given their edge and risk per trade.
AdvancedRisk Per Trade
The percentage or dollar amount of your account you are willing to lose on a single trade. Typically 0.5–2% for most traders.
BeginnerRisk Tolerance
The maximum level of financial loss and psychological discomfort a trader can absorb without deviating from their strategy.
Beginner