Risk Capital
Money explicitly set aside for speculation that the trader can afford to lose in its entirety without affecting their financial wellbeing.
Risk capital is the portion of your net worth allocated to active trading — funds you have mentally (and practically) pre-committed to potential total loss. Distinguishing risk capital from retirement savings, emergency funds, or living expenses is foundational to trading with clear decision-making.
Trading with capital you cannot afford to lose creates psychological pressure that warps every decision: cuts winners short, holds losers too long, and sizes up to "make it back." Protecting the boundary between risk capital and survival capital is a prerequisite for longevity.
Related Terms
Capital Preservation
The principle of protecting trading capital above all else — because you cannot trade without capital, survival is the first objective.
BeginnerDrawdown
The peak-to-trough decline in account equity from a high point to the subsequent low before a new high is reached.
BeginnerMaximum Drawdown
The largest peak-to-trough equity decline recorded over a strategy's full history — the worst-case loss an investor would have experienced.
IntermediateMoney 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 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.
Beginner