The Investor Diary Entry #82: September 3, 2025
In this diary entry, I break down the exact money management system I am using in my Forex trading. This isn’t theoretical; it is the practical, personal framework I follow to protect my capital and manage risk. I am documenting this for my own records and for anyone else on this journey who wants to see a real-world example of a simple money management system in action.
As I’ve learned, trading forex successfully isn’t just about finding good entries; it is about surviving the bad ones. And that is where a disciplined approach to risk comes in. For me, money management is a critical part of the broader risk management picture, which also includes psychology and financial goals. But today, I’m zeroing in on the numbers and rules that govern my trades.
This system is built on four core components: risk per trade, risk for open trades, risk-to-reward ratio, and lot size. Together, they form a cohesive plan that removes emotion and guesswork from my decision-making process.
Risk Per Trade: The Foundation of My Plan
The first question I ask before any trade is: “How much of my capital am I willing to lose on this single idea?” This is my risk per trade. It is the absolute cornerstone of my entire system.
For a long time, I used to use 1% as my risk per trade percentage, but now with this new trading system, I am very strict with myself, risking only 0.5% of my account on any single trade. This conservative approach was great for preserving capital while I was testing and refining my trading plan. However, after reviewing my results over the past few weeks, I’ve decided to introduce some flexibility.
My current rule is that I will risk between 0.5% and a maximum of 1% per trade. This allows me to adjust slightly based on the conviction of the setup. On a $1,000 account, this means I am risking between $5 and $10 per trade. This flexibility helps things progress a bit quicker without exposing my account to dangerous levels of risk. The goal to become a successful Forex trader is a marathon, not a sprint, and this adjusted range helps me maintain a sustainable pace.
One very important thing to note is that the percentage I use is not on my initial capital but rather on my current balance. This way, if the account balance goes down the amount I am risking goes down with it. The beautiful thing is that when the account grows, this method activates the accumulation methodology.
Let us leave this here and discuss it more once we reach the Risk-to-Reward Ratio section.
Risk For Open Trades: My Overall Exposure Limit
A key part of learning risk management in Forex trading is understanding that risk is cumulative. It’s not enough to just limit risk per trade; you must also limit your total exposure when you have multiple positions open at the same time.
This is where my rule for risk on all open trades comes in. I have a preferred overall exposure level and a hard maximum that I will not exceed. My preferred risk, when I have several trades running simultaneously, is around 3% of my account. However, I allow myself an absolute maximum ceiling of 6%.
How does this work with my per-trade risk? If my risk per trade is 1%, having three trades open would put me right at my preferred 3% exposure limit. If I were to open a fourth trade at 1%, I would hit 4%, which is still under my 6% maximum but above my preferred level. This rule forces me to be selective about how many positions I have open and prevents me from overleveraging during volatile market conditions.
The current trading system that I am using is heavily dependent on pending orders, and I have a lot of them waiting to be triggered. Therefore, one of the major advantages of using a demo account, which I am using now, is to know what is the number of trades that my trading system will open at the same time.
Currently, the system is opening between 3-4 trades at the same time. With my 0.5-1% trades per risk range, I am totally fine. If this stays the same over the whole testing period, then I might be encouraged to get back to my old 1% risk per trade.
Risk to Reward Ratio: The Non-Negotiable Filter
Before I even think about position size, every potential trade must pass my risk-to-reward filter. I simply do not take trades that offer a reward that is less than twice the risk I am taking. My minimum acceptable ratio is 1:2.
Thankfully, the trading system I am using often provides setups with even better ratios, sometimes reaching 1:4 or 1:5. I am even studying a method that could potentially yield ratios as high as 1:12. But the foundation remains the same: a trade must have strong profit potential relative to the risk. This means that I can be wrong more often than I am right and still be profitable, as my winning trades will be larger than my losing ones. This principle is absolutely non-negotiable in my plan.t
Remember in the above risk per trade section where we left off the discussion about accumulation. Let us continue here.
If my Risk-To-Reward ratio is a fixed 1:2; meaning, I profit twice what I lose, and I have an account of $1000, and my risk per trade is 0.5% then on this account balance I lose $5 and I gain $10.
With the law of accumulation, if my account grows to $2000 then I risk $10 and I gain $20 on each trade. This way my account grows faster the more it grows.
Lot Size: The Dynamic Result
Finally, we come to lot size, or position sizing. This is not a fixed number I decide on arbitrarily. It is the dynamic result of the three previous components. My lot size is calculated based on my account size, the specific stop-loss distance of the trade in pips, and my chosen risk percentage for that trade (within my 0.5% – 1% range).
I use a free online position size calculator to do the math for me precisely. Let me walk you through my exact process, just as I did in the video.
Suppose I’m looking at the AUD/CAD pair. My account balance is $1,000, and I’ve found a setup where my stop-loss needs to be 30 pips away. I decide this is a solid trade, so I’m willing to use 0.7% of my capital.
I plug these numbers into the calculator:
- Account Balance: $1,000
- Risk Percentage: 0.7%
- Stop-Loss Distance: 30 pips
The calculator tells me I should risk $7 on this trade and that to do so, I need a position size of approximately 0.023 standard lots, or 2.3 micro lots. Since we can’t trade fractional micro lots on most platforms, I would round this down to 2 micro lots or, if I have high conviction and it still keeps my risk below 1%, I might round up to 3 micro lots. The calculator confirms that 3 micro lots would mean I’m risking just under 1% of my account, which is still within my predefined rules.
Furthermore, remember the accumulation law that we talked about. The dynamic system that I am using lets me increase my lot size the more my account grows, and shrinks my lot size in case my account balance decreases.
This is the entire system. It is simple, disciplined, and effective. It removes emotion and ensures that every trade I take is governed by strict rules that prioritize capital preservation. This is my money management system. It is the bedrock upon which I am building my journey to become a successful Forex trader.
This is my personal framework. It is what works for me. If you are working on how to learn risk management in Forex trading, I hope seeing my process provides some value. Remember, this is my diary, not financial advice. Always do your own research and develop a plan that fits your own individual style and risk tolerance.
The Investor
Wednesday 3 September 2025
About The Author
I started to look into individual stocks in January 2022. I created this diary initially for myself to track my investing progress, and second, as a place where I can share my ideas publicly hoping that others will share their ideas and learn from each other, and lastly as an online business where some links that I share are affiliate links, and if anybody bought anything by clicking those links, I will get a commission based on that successful sale, which of course will not affect the price that you are buying the product or service at.
This blog is also part of something else I’m learning: blogging. I’m using a platform to learn that part. And if you’re interested in that it is called Wealthy Affiliate, look it up.
For more detailed information on my affiliate disclosure, please refer to the Full Affiliate Disclosure page.
Furthermore, this site is in no way or form giving any financial or investing advice, nor is it encouraging or discouraging people to buy or sell any financial instrument. This is a personal diary in which I track my own progress and share it for informational, educational, and entertainment purposes.
I really appreciate how candid and systematic your money management approach is—it’s refreshing to see practical, real-world rules grounded in personal experience. The way you’ve structured your system around four clear pillars—risk per trade, total open-trade exposure, risk-to-reward ratio, and dynamic lot sizing—is both disciplined and sustainable. I especially like how the accumulation principle keeps your position sizing in line with your growing (or shrinking) account balance. Have you tried tracking how your account growth rate responds over time with this methodology, perhaps comparing consistency of performance using a fixed risk versus your current flexible 0.5%–1% risk range?
Hello Hanna, I used to use fixed risk. I started with 1%, but that was too risky for the new trading plan in which I use pending orders for. Let me show you how is that risky. I have about 15 pending orders waiting to be triggered. .If seven of those opened simultaneously, then my total exposure will be 7% which is against my total exposure rule.
When I went down to 0.5% with a small capital I would be dealing with micro lots. Sometimes, the calculator would give me a lot size of 0.015. There is no position less than a micro; therefore, I have two options either I go to 0.01 which means my risk is now below 0.5% which is really very low. Or choose to go for 0.02.
My choice was to go to 0.02 which meant that I need to hvae a flexible Risk Per Trade which became 0.5%-1%.
I hope I answered your question.
Thank you very much for your question, as the more I explain the more I learn.
I’m really interested in learning Forex, but my fear of losing money has been holding me back. Your explanation of the money management system has helped me see how important it is to have a structured plan in place before risking real money.
I appreciate your emphasis on managing risk per trade and overall exposure. This approach makes trading feel less like gambling and more like a disciplined strategy. The suggestion to start with a 0.5% risk per trade sounds very manageable for someone like me who is just starting out and wants to limit potential losses.
My question is, do you recommend that beginners like me stick to demo accounts until we can consistently show profits using this risk management system, or is there value in trading small amounts of real money early on to get a feel for the emotional aspects of trading?
Thank you for sharing your personal system. It really makes the idea of trading seem more approachable!
Hello Alyssa, First thank you very much for your comment. Let us get to your very important question.
personally, I see no value in risking real money no matter how small it is.. Actually, I am now working on a piece that adds another layer before demo which is backtesting.
In brief, I am totally with the demo account. Actually, I am on a demo account, and I will not move into a live account until I achieve the goals I have set for my self to achieve on a live account. Meaning, I need to show myself that I am able to achieve the goals on a demo account to allow myelf to fund a real account.
Because the demo account needs time to show results, I have added using a backtesting software that shows results fast, but does not cancel the need for a demo account. I used the backtesting and then moved into a demo account.
With zero experience with Forex Trading, I was eager to read your article to learn from you.
Asking yourself how much money you are willing to lose sounds like a good plan, even though we never want to lose money, we must be willing to take some loss in this type of investing.
After reading your system that you use yourself, I do understand this much better than before I read your article.
Jeff
Hello Jeff, Heey glad that you found something for you in the article. Cheers
This diary entry is a goldmine for anyone serious about sustainable Forex trading. I really admire how the author strips away complexity and focuses on disciplined, real-world application—especially the flexible risk-per-trade range and dynamic lot sizing. The emphasis on protecting capital while allowing for growth through the “law of accumulation” is both strategic and empowering. It’s clear this system isn’t just about numbers—it’s about mindset, patience, and emotional clarity. A great example of how simplicity, when paired with consistency, can become a powerful edge in the market.
Hello Kiersti, thank you very much for your kind words