Lesson 7 of 7 · 12 min
Course check: test yourself Flashcards for the risk vocabulary, and ten questions on sizing, ratios, stops, drawdowns, correlation and planning.
By the end you'll be able to
Recall the risk-management terms from the whole course Answer mixed questions across all six lessons Decide whether you are ready for Fundamental Analysis Free course
Enrol in “Risk & Money Management” to start this lesson Enrolling is free. Your progress, quiz scores and certificate are kept in your account, on every device.
This course is mostly arithmetic, so the check is mostly arithmetic. If you can do these in your head, you are ready.
Flashcards
Risk-management terms
1 / 14
Term Risk per trade Tap to reveal Definition The amount you would lose if your stop loss is hit, usually expressed as a percentage of the account. Common guidance is 1 to 2%. Term Position size Tap to reveal Definition How much you trade, in lots or units. Set from your stop loss and the amount you are willing to risk, not the other way round. Term Stop loss Tap to reveal Definition An order that closes your trade automatically at a set price to limit your loss. Term Take profit Tap to reveal Definition An order that closes your trade automatically once it reaches a set profit. Term Reward-to-risk ratio Tap to reveal Definition How much a trade stands to gain for each unit it risks, measured from entry to target against entry to stop. 2:1 means two pips of potential reward for every pip risked. Term Break-even win rate Tap to reveal Definition The share of trades you must win to neither gain nor lose, given your reward-to-risk ratio: 1 ÷ (1 + R). At 2:1 it is about 33%. Term Expectancy Tap to reveal Definition The average result per trade over many trades: (win rate × average win) − (loss rate × average loss). Positive expectancy is what makes a method profitable over time. Term Drawdown Tap to reveal Definition The fall in your account from a peak to a low, usually shown as a percentage. Term Maximum drawdown Tap to reveal Definition The largest peak-to-trough fall in account value over a period. It measures how painful a method is to trade, not just how profitable. Term Losing streak Tap to reveal Definition Several losing trades in a row. Streaks are a normal product of chance, and their length is what decides how small risk per trade must be. Term Correlation Tap to reveal Definition How closely two pairs move together, from +1 (always together) to −1 (always opposite). Correlated positions add up to one bigger bet. Term Trading plan Tap to reveal Definition A written set of rules covering what you trade, when, how much you risk, what a valid setup is, and how you enter, exit and review. Term Daily loss limit Tap to reveal Definition A fixed loss, in money or in consecutive losses, at which you stop trading for the day. It prevents one bad session from becoming a disaster. Term Equity Tap to reveal Definition Your account balance plus or minus the running profit or loss on open trades.
← Previous Shuffle Next →
Course quiz
Course quiz: 10 questions
Question 1 of 10
Account $8,000, risk 1%, stop 32 pips on EUR/USD. Position size?
A 0.25 lots B 0.40 lots C 2.5 lots
Next question Question 2 of 10
Which is the correct order of decisions for a trade?
A Size, then entry, then stop B Risk amount, stop from the chart, then size C Entry, then size, then decide the stop if needed
Next question Question 3 of 10
Entry 1.0850, stop 1.0830, target 1.0910. Reward-to-risk?
A 3 : 1 B 2 : 1 C 1 : 3
Next question Question 4 of 10
A method wins 35% of trades at 2.5:1. Is it profitable before costs?
A No, it loses more often than it wins B Yes; break-even at 2.5:1 is about 29%, and 35% is above it C Only if the win rate rises above 50%
Next question Question 5 of 10
You sold at resistance. Where does the stop belong?
A Above the resistance zone, with a little room B A fixed 15 pips above entry C Below entry, to lock in profit immediately
Next question Question 6 of 10
After a 40% drawdown, the gain needed to recover is:
A 40% B 67% C 100%
Next question Question 7 of 10
A simulation of your method shows a worst drawdown of 35% at 4% risk. What should change?
A The win rate B The risk per trade, downwards C Nothing; 35% is normal
Next question Question 8 of 10
You buy EUR/USD, buy AUD/USD and sell USD/CHF, 1% each. Dollar exposure?
A Roughly 3% short the dollar B Roughly 1%, diversified across three pairs C Zero; they cancel
Next question Question 9 of 10
What is the purpose of a daily loss limit?
A To stop one bad session becoming a disaster B To guarantee a profit each day C To limit how many pairs you trade
Next question Question 10 of 10
Which line does NOT belong in a trading plan?
A Minimum reward-to-risk of 2:1 B Target of $500 profit per week C Stop below the swing low that defines the setup
See my score What next
Scored 8 or more: you are ready for Fundamental Analysis , which covers what moves currencies.
Scored 5 to 7: revisit the lessons behind the questions you missed, then retake the quiz.
Below 5: go through the course again with a calculator beside you. This is the one course where every number has to be automatic.
Mark lesson complete
Free certificate
Mark every lesson complete and pass the final quiz with 70% or more to get a certificate of completion. You can download it as a PDF or share it on LinkedIn.
Get your certificate