How to write a forex risk management plan (with a worked template)

A forex risk management plan is a short written document that fixes, in advance, how much you are allowed to lose per trade, per day, per week and per month, how much total risk can be open at once, and what you do when any of those limits is hit. It is written when you are calm and away from the screen, so that decisions made during a losing session have already been taken. A good one fits on a single page and is mostly numbers.

Most traders have rules in their head. The difference a written plan makes is that the numbers cannot quietly change after three losses in a row. This guide builds a plan line by line, explains why each line exists, and ends with a filled-in template on an illustrative account that you can adapt.

Why a written plan, rather than good intentions

Leveraged trading punishes inconsistency more than almost any other activity. A strategy with a small positive edge can still lose money if position size drifts upwards after losses, if one bad day is allowed to run to five times the normal loss, or if several trades on the same currency are opened at once. Most retail CFD accounts lose money, according to the risk disclosures brokers are required to publish, and the why most retail CFD traders lose guide covers the patterns behind that. Uncontrolled risk is near the top of the list.

A written plan helps in three specific ways:

• It removes in-the-moment decisions. "How much should I risk on this one?" is a bad question to answer while you are down on the day. The plan answers it in advance.
• It makes rule breaks visible. If the plan says 1% and your journal shows 2.5%, there is no room for interpretation. That is what makes a trading journal useful.
• It limits the damage of the trades you will inevitably get wrong. You cannot avoid losing trades or losing streaks. You can decide how much they cost.

A risk plan is not a trading strategy. It does not tell you what to buy or sell, or when. It sits on top of whatever approach you use and puts a ceiling on the cost of being wrong.

The layers of a risk plan

Think of the plan as a set of nested limits. Each one catches what the smaller one lets through.

1. Risk per trade: the maximum loss on a single position if its stop is hit.
2. Maximum open risk: the combined loss if every open position hit its stop at once.
3. Correlated exposure: a cap on how much of that open risk can depend on the same currency or theme.
4. Daily loss limit: the point at which you stop trading for the day.
5. Weekly and monthly loss limits: larger circuit breakers that catch a run of bad days.
6. Drawdown steps: rules that reduce risk per trade as the account falls from its peak, ending in a full stop and review.
7. Event and time rules: what you do around high-impact news, weekends and holidays.
8. Review schedule: when the plan itself can be changed, and by what evidence.

The rest of this guide takes each in turn.

Line 1: risk per trade

Everything else in the plan is built from this number, so set it first. Risk per trade is the amount you lose if the stop-loss is hit, expressed as a percentage of the account. It is not the margin used, and it is not the position size. The position sizing guide shows how to turn a percentage into a lot size from the stop distance, and the position size calculator does the arithmetic.

Many retail traders use somewhere between 0.5% and 2% per trade. The right figure for you depends on how long your losing streaks can be, and the risk of ruin guide shows how quickly larger percentages compound into deep drawdowns. As a reference point: ten losses in a row at 1% per trade leaves an account about 9.6% below where it started; at 3% per trade it leaves it about 26.3% down.

Write the rule down in a way that leaves no wriggle room:

• State the percentage and whether it is measured from balance or equity. Balance is simpler; equity is more conservative when trades are open.
• State that the stop is placed where the trade idea is invalidated first, and the size is calculated from that distance, never the other way round. The stop placement guide covers the first half.
• State how you round. Always round lot sizes down, so the actual risk is at or slightly below the plan.
• State how costs are handled. Adding the spread (and commission, if any) to the stop distance before sizing keeps the real loss close to the planned loss.

One more line that is worth including: risk per trade does not change because of recent results. Not after three winners, not after three losers.

Line 2: maximum open risk

If you allow 1% per trade and have five trades open, a sudden move against all of them could cost 5%. Maximum open risk is the cap on that total. A common structure is a cap of two to four times the single-trade risk.

Two practical details:

• Count trades at full risk until the stop has moved. Once a stop is at or beyond entry, that position's remaining risk is close to zero (gaps aside), and many traders stop counting it. Until then it counts in full.
• Pending orders count once they could fill. If you have three pending orders that could all trigger in the same move, plan as though they will.

Line 3: correlated exposure

Currency pairs share currencies. Long EUR/USD, long GBP/USD and short USD/CHF are three positions but, in many market conditions, mostly one bet against the US dollar. The currency correlation guide explains how to measure that, and why correlations change over time.

A simple way to write the rule: no more than a set amount of open risk may depend on any single currency. For example, if your maximum open risk is 3%, you might cap the exposure to any one currency at 2%. That allows two unrelated trades plus a third on a different currency, but not three trades that all rely on the dollar weakening.

The same logic applies to assets that tend to move with risk sentiment. If you also trade index CFDs or gold, a long NASDAQ position and a short USD/JPY position can respond to the same news.

Line 4: the daily loss limit

The daily loss limit is the point at which you stop opening new trades for the rest of the day. It exists because a bad day rarely stays at one or two losses: the losses change behaviour, behaviour changes size and frequency, and one session becomes a large drawdown. The daily loss limit guide covers the mechanics in depth, including how floating losses count and when the trading day resets.

For the plan, decide three things:

• The size of the limit. Express it as a multiple of risk per trade. Two to three full losses is a common range. At 1% per trade, that is a daily limit of 2% to 3%.
• What counts. Closed losses only, or closed losses plus the floating loss on open trades. Counting both is stricter and closer to how your equity actually behaves.
• What you do when it is hit. Close the platform, not just stop clicking. Decide in advance whether open positions are closed or left to their stops.

Line 5: weekly and monthly limits

A daily limit alone is not enough. A 2% daily limit allows five consecutive bad days to take 10% from the account, and twenty bad days in a month to take far more. Weekly and monthly limits catch a run of bad days in the same way the daily limit catches a run of bad trades.

A structure that keeps the layers consistent:

• Weekly limit: roughly two daily limits.
• Monthly limit: roughly two weekly limits.

When the weekly limit is hit, trading stops until the next week. When the monthly limit is hit, live trading stops for the rest of the month and you move to review. The idea is not to punish yourself; it is to step back when the evidence suggests something is not working, whether that is the market, the approach or your execution.

Line 6: drawdown steps

Loss limits are about time periods. Drawdown steps are about the distance from the account's peak, however long it took to get there. The drawdown and recovery guide explains why recovering from a deep drawdown takes disproportionately large gains: a 20% fall needs a 25% gain to get back, and a 50% fall needs 100%.

Drawdown steps reduce risk per trade as the account falls, which slows the descent while you find out whether the drawdown is ordinary bad luck or a sign of a problem. An illustrative ladder:

• Within 5% of the peak: normal risk per trade.
• 5% to 10% below the peak: half normal risk.
• More than 10% below the peak: stop live trading, review, and continue only on a demo account or at minimum size until the review is complete.
• Return to normal risk only once the account is back within 5% of its peak, or after a set number of trades at reduced risk that follow the rules.

You can track drawdown by hand or with the drawdown calculator, which shows the recovery needed from any given fall.

Line 7: event and time rules

Some of the largest losses come from moments when prices move faster than stops can be filled. The plan should say what you do around them:

• High-impact releases. Interest rate decisions, US non-farm payrolls, CPI and similar data can widen spreads sharply and cause slippage. The plan might say: no new trades in the 15 minutes before and after a high-impact release for either currency in the pair; existing positions either closed or kept at reduced size. The news trading risks guide explains why. An economic calendar tells you when releases are scheduled.
• Weekends. Prices can open on Monday some distance from Friday's close, jumping straight over stops. The gap risk guide covers this. The plan might cap weekend open risk lower than weekday open risk.
• Holidays and thin hours. Lower liquidity can mean wider spreads and sharper moves.
• Your own condition. It is reasonable for a plan to include a line such as: no trading when tired, ill, or immediately after a large loss outside the market. It is not about mood; it is about the quality of decisions.

Line 8: the review schedule

A plan that can be changed whenever you like is not a plan. Write down when it is reviewed and what evidence can change it:

• Weekly: check that every trade followed the plan. Count rule breaks separately from losses.
• Monthly: compare results with the limits. Were any hit? Was the daily limit too tight to ever allow the strategy to work, or so loose it never came close?
• Changes to risk per trade only after a meaningful sample. Fifty to a hundred trades is a sensible minimum, because shorter runs say very little. The trading metrics guide explains which numbers are worth looking at.

Changes take effect from the next week, never mid-session.

Worked example: a filled-in plan

All numbers below are illustrative and chosen to show the arithmetic, not as recommended settings. The account is a US dollar account with a balance of $10,000.

Risk per trade: 1% of balance at the start of the day, so $100. Stop placed first, size calculated from stop plus spread, lots rounded down.

Maximum open risk: 3% ($300) at full risk. Positions with a stop at or beyond entry are not counted.

Correlated exposure: no more than 2% ($200) of open risk depending on any one currency.

Daily loss limit: 2% ($200), counting closed losses plus floating losses on open trades. On reaching it, close the platform; open positions stay with their stops.

Weekly loss limit: 4% ($400). On reaching it, no new trades until the following Monday.

Monthly loss limit: 8% ($800). On reaching it, live trading stops for the month and the review starts.

Drawdown steps: normal risk within 5% of the peak; 0.5% per trade between 5% and 10% below the peak; stop and review beyond 10%.

Event rule: no new positions from 15 minutes before to 15 minutes after a high-impact release for either currency in the pair. Weekend open risk capped at 1%.

Review: weekly rule-break check on Saturday; full review on the first weekend of each month; risk settings changed only after 50 trades and only from the next Monday.

Sizing two trades under the plan

Trade one is a long EUR/USD with a stop 24 pips below entry. The typical spread is about 1 pip, so the plan sizes from 25 pips. On a USD account, one standard lot of EUR/USD is worth $10 per pip, so the risk budget of $100 over 25 pips is $4 per pip, or 0.40 lots. If the stop is hit, the loss is about $100 including the spread. The pip value calculator gives pip values for other pairs and account currencies.

Trade two is a short USD/JPY at an illustrative price of 150.00 with a stop 40 pips above entry. A pip on USD/JPY is 0.01 yen per unit, so one standard lot of 100,000 units moves 1,000 yen per pip, which at 150.00 is about $6.67. The budget is $100 over 40 pips, so $2.50 per pip, which is 0.375 lots. Rounded down, that is 0.37 lots, for a risk of about $98.67.

Both trades are open at once, so open risk is about $199, below the $300 cap. Is the correlated exposure rule met? Trade one is long euro and short dollar; trade two is short dollar and long yen. Both depend on the dollar falling, so the dollar exposure is about $199, just inside the $200 cap. A third trade that was also short the dollar would not be allowed until one of these had its stop moved to entry or was closed.

A bad day under the plan

On the same day, trade one hits its stop for a loss of $100. Trade two is showing a floating loss of $60. The daily total counted under the plan is $160, so $40 of the daily budget remains. A new trade at full size would risk $100, and if it lost while trade two also lost, the day could end at $300, beyond the limit.

The plan's options are to take no new trade, or to size a new trade to the $40 that remains. Either is consistent with the plan. Opening a full-size trade "because the setup is good" is not. If trade two then hits its stop, the daily loss is $199, the limit is effectively reached, and the platform closes for the day.

A bad month under the plan

Suppose the month runs badly and the account falls to $9,450, a 5.5% drawdown from the $10,000 peak. The drawdown step cuts risk per trade to 0.5%, about $47 on the current balance. The next ten losses in a row, if they came, would take the account to about $8,988, a 10.1% drawdown, at which point the plan stops live trading. At the original 1% per trade, the same ten losses would have taken it to about $8,546, a drawdown of 14.5%. The smaller size does not stop the losing; it buys time and keeps more of the account intact while you find out why.

How to keep the plan in front of you

The plan does most of its work in the seconds before you click buy or sell. A few habits make it hard to ignore:

• Turn it into a pre-trade checklist. Four or five yes/no questions: is the stop set at invalidation? Is size calculated from it? Is open risk under the cap? Is the currency exposure under the cap? Is there a high-impact release within 15 minutes?
• Keep a running daily total. Write the remaining daily budget at the top of your notes and update it after every closed trade.
• Set the platform to help. Alerts on equity levels, saved order templates with your usual stop distances, and an account size that makes the minimum lot small relative to your risk all reduce friction. Some traders use a script or Expert Advisor to warn them or close positions at a loss level; test any such tool on a demo account first, as the Expert Advisors guide explains.
• Record rule breaks separately. A losing trade that followed the plan is a cost of doing business. A trade that broke it is a different problem, and the journal should show the difference.

Leverage, margin and the plan

The plan is written in terms of risk, not leverage, because leverage does not by itself determine how much you lose; position size and stop distance do. Leverage determines how much margin a position needs and therefore how large a position you could open. EU and UK retail clients are limited to 30:1 on major currency pairs and lower on others, as the ESMA leverage limits guide explains.

It is still worth a line in the plan. If your total margin used is a large share of equity, a modest move against you can bring the account close to a margin call and stop-out, at which point the broker closes positions rather than your stops doing so. Some traders add a rule that margin used should stay below a set share of equity, as a second check that positions are not larger than intended.

Common mistakes

• Writing a plan with no numbers. "Keep losses small" and "don't overtrade" are intentions. A plan says 1%, $200, three trades, 15 minutes.
• Layers that do not fit together. A 1% daily limit with 2% risk per trade means a single loss breaches the day. A 10% daily limit with 1% per trade means the limit will never act until the damage is done.
• Ignoring correlation. Three trades at 1% that all depend on the same currency are much closer to one 3% trade than to three independent ones.
• Counting only closed losses. A floating loss is a real loss until it recovers, and it is part of your equity.
• Changing the plan mid-session. Raising the daily limit because "the market is about to turn" is the exact decision the plan exists to prevent.
• Increasing size after losses to recover faster. This is the most direct route from a drawdown to a much larger one. The trading psychology guide covers revenge trading.
• Expecting the plan to produce results. A risk plan limits losses; it does not create an edge. A strategy with negative expectancy still loses money under a perfect plan, just more slowly.

Frequently asked questions

What should a forex risk management plan include?

At minimum: risk per trade, a cap on total open risk, a cap on exposure to any one currency, daily, weekly and monthly loss limits, drawdown steps that reduce risk as the account falls, rules for news and weekends, and a schedule for reviewing the plan. Each should be a number, written down before you trade.

How much should I risk per trade in forex?

Many retail traders use between 0.5% and 2% of the account per trade, but the right figure depends on your strategy's losing streaks and how large a drawdown you can tolerate. Lower percentages make deep drawdowns much less likely. The risk of ruin and drawdown guides show the arithmetic for different settings.

What is a reasonable daily loss limit?

It is usually set as a multiple of risk per trade, often two to three full losses. At 1% per trade that would be 2% to 3% of the account. The limit should be large enough to let your strategy work on an ordinary day and small enough to stop a bad day becoming a bad month.

Should the daily limit include open trades?

Counting floating losses on open trades is stricter and reflects your actual equity, so many traders prefer it. Counting only closed trades is simpler but lets the real loss on the day run beyond the limit if open positions then hit their stops.

How often should I change my risk plan?

Rarely, and on a schedule. A sensible approach is to review it monthly and change risk settings only after a meaningful sample of trades, such as 50 to 100, with any change taking effect from the following week rather than during a session.

Does a risk plan make trading safe?

No. It limits how much you can lose in a given period and stops small problems compounding, but leveraged trading remains high risk. Gaps and fast markets can fill stops at worse prices than planned, and a strategy without an edge will lose money whatever the plan says.