Risk management is the practice of controlling how much you can lose on any trade before you enter it.
Risk management is the set of rules a trader uses to limit losses and protect their capital. It covers decisions like how much money to put into a single trade, where to exit if things go wrong, and how to balance exposure across positions. Good risk management accepts that losses are part of trading — and makes sure no single loss is large enough to do real damage. It is the difference between trading as a long-term skill and trading as a gamble. Professionals treat risk management as their first priority, long before they think about profit.
Imagine driving a car. You can’t control every other driver on the road, but you wear a seatbelt, keep a safe distance, and don’t speed — so that if something goes wrong, you walk away. Risk management is the seatbelt of trading: it doesn’t stop bad things from happening, but it keeps any single mistake from being fatal.
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