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Learn how position sizing, leverage, margin and drawdown really work, with calculators that show the exact maths for your own account.
Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Educational content only. Nothing here is a recommendation, and no result is guaranteed.
Almost every trader will be wrong often. What separates traders who last from those who do not is usually not clever entries. It is how much each mistake costs. Risk management is the set of rules that keeps losses survivable so you are still trading next week.
It is also the part of trading you fully control. You cannot control where gold goes. You can control your lot size, your stop loss and how many trades you take.
Risk is the amount you lose if a trade goes wrong (entry to stop loss). Reward is what you gain if it works (entry to take profit). Comparing the two as a ratio is covered in the stop-loss lesson. The key idea here: define the risk in money terms first, as a number you are prepared to lose.
Leverage lets a small deposit control a large position. A 1% move in gold on a position ten times your deposit is a 10% move in your account. Gold regularly moves 1% or more in a day, and sometimes much more around news. Higher leverage is not "more profit", it is faster results in both directions.
The thresholds vary by broker, so find them in your broker's terms. The practical lesson: if a trade is large enough that a normal move threatens a margin call, it is too large.
Balance counts closed trades only. Equity is balance plus or minus the floating profit or loss on open trades. Equity is the number that matters for risk, because it is what the broker looks at for margin. A balance of $10,000 with a floating loss of $1,500 means equity of $8,500.
| Lot | Name (common) | Ounces | Approx. $ per $1 move |
|---|---|---|---|
| 1.00 | Standard | 100 | $100 |
| 0.10 | Mini | 10 | $10 |
| 0.01 | Micro | 1 | $1 |
These assume 100 ounces per standard lot, which is common but not universal. Always read your broker's contract specification.
$10,000 account, risk 1% = $100. Entry 2700, stop 2690: distance 10. Loss per lot = 10 × 100 = $1,000. Lot size = $100 ÷ $1,000 = 0.10 lots.
Same account, but a stop only 4 points away: loss per lot $400, so lot size = 0.25. A tighter stop allows a larger lot for the same money at risk, but a tighter stop is also hit more easily.
Our calculator includes the extras that real accounts need: other currencies, your broker's minimum lot and lot step, and a cap on maximum size.
A fixed small percentage per trade scales with your account: bigger when it grows, smaller when it shrinks. The examples below are illustrations only, not recommendations for any individual. The right level depends on your finances, experience and ability to cope with losses.
| Risk per trade | On $10,000 | Lots at a 10-point stop* |
|---|---|---|
| 0.5% | $50 | 0.05 |
| 1% | $100 | 0.10 |
| 2% | $200 | 0.20 |
*100 oz per lot, ignoring spread and commission.
Losing streaks happen to everyone. The question is how deep they cut. The chart shows the exact maths for four risk levels, assuming a fixed percentage of the current balance is lost on each trade.
Risking small amounts buys time to learn, to recover and to stay rational.
A drawdown is the fall from a previous peak. Recovery is not symmetric: to get back to even after losing 50% you need to double what is left, a 100% gain.
Too much leverage turns normal market noise into account-threatening moves. A trader with a small stop and a huge lot can be stopped out by ordinary movement and by spread alone. Excessive leverage also tempts people to hold positions through news, when spreads widen and prices gap. Regulators restrict retail leverage for exactly this reason.
A stop loss is an order to close at the next available price. If gold gaps (weekend open, surprise news, thin markets), the fill can be far worse than the stop level, and with leverage the account can lose more than the stop distance implied. Some brokers offer guaranteed stops for an extra fee, and some regulated retail brokers offer negative balance protection. Check what yours offers.
Costs act like a tax on every trade. A trader who risks 1% per trade and pays costs equal to 0.1% each time gives up a tenth of every risk unit. Costs matter most with tight stops and short-term trades. Always include them in your plan.
Top-tier releases (US inflation, jobs, central bank decisions) can move gold sharply in seconds. Spreads widen, orders can slip, and platforms can lag. Common risk-reducing choices are: no new trades in the minutes around the release, smaller size, wider (not removed) stops with smaller lots, or standing aside. See what moves gold prices for how to read a calendar.
Practical guards: a maximum number of trades per day; a maximum daily loss, after which you stop; a pause rule after two losses in a row; and a journal where you write the reason for each trade before you place it.
There is no right answer for everyone. Many traders risk 1% or less of their account per trade, but that is a common habit, not a recommendation. It depends on your situation and how much you can afford to lose.
Work it out from your money at risk and your stop distance: lot size equals risk divided by (stop distance times contract size). Use the calculator on this page.
A warning from your broker that your equity has fallen to a low level relative to the margin your positions use. If it keeps falling, positions may be closed automatically (stop-out).
It depends on your broker and country. Some regulated retail brokers offer negative balance protection, but gaps and slippage can still cause large losses. Check your broker's terms.
Because each gain is applied to a smaller balance. After a 50% loss you need a 100% gain to return to the starting point.
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