Forex Trading Risk Management 2

Question 1

A trader has a $10,000 account and risks 2% per trade. Their stop-loss is 50 pips on EUR/USD (pip value $10). What is the maximum position size?

Accepted Answer

0.2 lots

Answer

Risk amount = $200 (2% of $10,000); $200 ÷ (50 pips × $10/pip per lot) = 0.4 lots — wait, $10/pip is for 1 standard lot, so 50 pips × $10 = $500 per lot; $200 ÷ $500 = 0.4 lots... actually pip value per mini lot (0.1) is $1, so 0.2 standard lots gives 50 pips × $10 × 0.2 = $100 — recalculate: $200 ÷ (50 × $10) = 0.4 lots.

Question 2

What does 'drawdown' measure in forex trading?

Accepted Answer

Peak-to-trough decline in account equity

Answer

Drawdown measures the percentage or dollar decline from an equity peak to the subsequent trough before a new peak is reached.

Question 3

Which risk management concept describes the ratio of potential profit to potential loss on a trade?

Accepted Answer

Risk-reward ratio

Answer

The risk-reward ratio compares the distance to the take-profit target versus the distance to the stop-loss, helping traders evaluate whether a trade is worth taking.

Question 4

A trader consistently wins 40% of trades but is profitable. Which risk management factor makes this possible?

Accepted Answer

Having a favorable risk-reward ratio

Answer

A win rate below 50% can still be profitable if average winners are significantly larger than average losers (e.g., 1:3 risk-reward).

Question 5

What is 'margin call' in the context of forex trading?

Accepted Answer

A broker's request to increase deposit to maintain open positions

Answer

A margin call occurs when account equity falls below the broker's required margin level, prompting the trader to deposit more funds or face automatic position liquidation.

Forex Trading Practice Test

Forex Trading Practice Test

Forex Trading Risk Management 2