Correlation and Liquidity
Correlation describes how markets tend to move in relation to each other. Liquidity describes how easily transactions can occur without large price disruption.
Topic: Risk Management
What Is Risk Management?
Risk management is the process of controlling how much can be lost on one trade and across a sequence of trades. It helps keep one mistake from becoming an account-threatening problem.
Position Sizing
Position sizing converts your planned dollar risk and stop distance into the amount you should trade. The correct lot size comes after the risk decision, not before it.
Risk per Trade and Risk-to-Reward
Risk per trade defines the planned dollar loss if the idea fails. Risk-to-reward compares that planned loss with the potential gain being considered.
Drawdown, Losing Streaks and Risk of Ruin
Drawdown measures the decline from a previous equity peak. Large drawdowns become progressively harder to recover from, which is why risk control matters across losing streaks.
Correlation
Correlation describes the degree to which two markets have tended to move in relation to each other.
Drawdown
Drawdown is the decline from a previous account or equity peak to a subsequent low.
Leverage
Leverage allows a trader to control market exposure larger than the capital committed as margin.
Position Size
Position size is the quantity of a currency pair held in a trade.
Risk-to-Reward
Risk-to-reward compares the amount planned to be lost if a trade fails with the amount potentially gained if the objective is reached.