Money Management
The set of rules governing how capital is allocated, how large positions are, and how losses are limited across a portfolio of trades.
Money management covers every decision about how capital is deployed: how much per trade, when to reduce size after losses, when to scale up after winners, and when to step back entirely. It is the operating system that runs under every strategy.
Good money management cannot turn a losing strategy into a winner, but poor money management will destroy even an excellent edge. The two core rules most professionals agree on: never risk more than you can afford to lose on any single trade, and reduce size when confidence in the setup is lower.
Related Terms
Capital Preservation
The principle of protecting trading capital above all else — because you cannot trade without capital, survival is the first objective.
BeginnerKelly Criterion
A formula that calculates the theoretically optimal fraction of capital to risk per trade to maximise long-run account growth without ruin.
AdvancedPortfolio Heat
The total percentage of account capital currently at risk across all open positions simultaneously.
IntermediatePosition Sizing
Calculating exactly how many shares, contracts, or lots to trade so that a stop-out costs no more than your chosen risk percentage.
BeginnerRisk Capital
Money explicitly set aside for speculation that the trader can afford to lose in its entirety without affecting their financial wellbeing.
BeginnerRisk 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