Risk Management Guide

Learn how to trade safely and protect your capital on Riverr.

Fundamental Risk Principles

Rule #1: Never Risk More Than You Can Afford to Lose

The most important rule in trading. Only use funds that won't impact your daily life if lost completely.

Rule #2: Position Sizing is Everything

Even the best trading strategy will fail with poor position sizing. Most successful traders risk only 1-2% of their account per trade.

Rule #3: Cut Losses Early, Let Winners Run

Don't let small losses become big ones. Use stop-losses consistently and avoid emotional decision-making.

Position Sizing Strategies

The 2% Rule

Never risk more than 2% of your total account on a single trade.

Example Calculation:

• Account size: $10,000
• Maximum risk per trade: $200 (2%)
• If your stop-loss is $50 away from entry, maximum position size is $4,000 to risk only $200

Position Size Formula

Position Size = (Account Size × Risk %) ÷ Stop-Loss Distance

Example:

• Account: $5,000
• Risk per trade: 1% = $50
• Stop-loss: 5% from entry
• Position size: $50 ÷ 0.05 = $1,000

Leverage and Position Sizing

Higher leverage doesn't mean higher position size - it means the same position size with less margin required.

Conservative approach:

• Use leverage to reduce required margin
• Keep the same dollar risk amount
• This allows for more trades and better risk distribution

Stop-Loss Strategies

Setting Effective Stop-Losses

Technical Stop-Losses

• Below support levels for long positions
• Above resistance levels for short positions
• Beyond recent swing highs/lows

Percentage-Based Stop-Losses

• Fixed percentage from entry price
• Long position: 5% below entry
• Short position: 5% above entry

ATR-Based Stop-Losses

• Use Average True Range (ATR) indicator
• Set stop at 1.5-2x ATR from entry
• Adapts to market volatility

Stop-Loss Best Practices

1. Set before entering trade - Never trade without predetermined exit
2. Don't move stops against you - Stick to original plan
3. Consider market volatility - Wider stops in volatile markets
4. Account for spreads and slippage - Set stops slightly wider than exact levels

Leverage Guidelines

Leverage by Experience Level

Experience	Recommended Max Leverage
Beginner	2x - 3x
Intermediate	5x - 10x
Advanced	10x - 20x
Expert	20x+ (with proper risk management)

Leverage Risk Assessment

3x Leverage Example:

• 10% price move against you = 30% account loss
• Liquidation occurs around 33% adverse move

10x Leverage Example:

• 3% price move against you = 30% account loss
• Liquidation occurs around 10% adverse move

warning

Higher leverage = faster potential profits BUT also faster potential losses and closer liquidation prices.

Diversification Strategies

Asset Diversification

Don't put all positions in correlated assets:

• ✅ Good: BTC long + Oil short + EUR/USD long
• ❌ Bad: BTC long + ETH long + ADA long (all crypto, likely correlated)

Time Diversification

Don't open all positions at once:

• Stagger entries over time
• Use dollar-cost averaging for larger positions
• Avoid FOMO-driven simultaneous entries

Strategy Diversification

Use different trading approaches:

• Trend following positions
• Mean reversion trades
• Breakout strategies
• Fundamental-based trades

Liquidation Prevention

Monitor Key Metrics

Margin Ratio

• Keep above 200% for safety buffer
• Add margin when approaching 150%
• Never let it drop below 120%

Liquidation Distance

• Track how far price can move before liquidation
• Maintain at least 20% buffer from liquidation price
• Consider adding collateral rather than closing profitable positions

Emergency Actions

When approaching liquidation:

1. Add Collateral - Deposit more funds to increase margin
2. Reduce Position Size - Partially close positions to reduce margin requirement
3. Close Positions - Exit before liquidation to save on liquidation fees
4. Hedge - Open opposite positions to reduce directional risk

Liquidation Fees

Avoid these extra costs by managing positions proactively:

• Liquidation fee: Usually 1-5% of position size
• Partial liquidation: System may liquidate only part of position
• Full liquidation: Entire position closed at once

Emotional Risk Management

Common Emotional Traps

FOMO (Fear of Missing Out)

• Entering trades without proper analysis
• Chasing price moves that already happened
• Solution: Stick to predetermined entry criteria

Revenge Trading

• Increasing position sizes after losses
• Taking unnecessary risks to "get even"
• Solution: Take breaks after significant losses

Overconfidence

• Increasing risk after winning streaks
• Abandoning risk management rules
• Solution: Maintain consistent position sizing regardless of recent performance

Psychological Best Practices

1. Keep a Trading Journal

   • Record entry/exit reasons
   • Note emotional state during trades
   • Review monthly for patterns

2. Set Daily Loss Limits

   • Stop trading after losing X% in a day
   • Prevents spiraling losses
   • Typical limit: 5-10% of account

3. Take Regular Breaks

   • Step away from screens periodically
   • Avoid overtrading
   • Maintain work-life balance

Portfolio Risk Metrics

Maximum Drawdown Limits

Set maximum acceptable portfolio decline:

• Conservative: 10% max drawdown
• Moderate: 20% max drawdown
• Aggressive: 30% max drawdown

Position Correlation

Monitor how positions move together:

• Low correlation: Positions move independently
• High correlation: Positions move together (higher risk)
• Use correlation tools to assess portfolio risk

Risk-Adjusted Returns

Focus on return per unit of risk, not just absolute returns:

• Sharpe Ratio: Return per unit of volatility
• Sortino Ratio: Return per unit of downside volatility
• Calmar Ratio: Return per unit of maximum drawdown

Platform-Specific Risk Features

Riverr Risk Tools

Position Alerts

Set up notifications for:

• Approaching liquidation levels
• Profit/loss thresholds
• Margin ratio warnings

Auto-Deleveraging (ADL)

• System may reduce positions during extreme market conditions
• Higher leverage positions get priority for ADL
• Keep moderate leverage to reduce ADL risk

Insurance Fund

• Platform maintains fund to cover liquidation shortfalls
• Protects other traders from socialized losses
• Monitor fund health in extreme market conditions

Risk Checklists

Before Opening Any Position

• Position size calculated using 2% rule
• Stop-loss level predetermined
• Take-profit targets identified
• Leverage appropriate for experience level
• Sufficient margin buffer (>200% ratio)
• Market volatility assessed
• Position fits within portfolio risk limits

Daily Risk Review

• Check margin ratios on all positions
• Review unrealized PnL vs daily limits
• Assess portfolio correlation
• Monitor liquidation distances
• Evaluate emotional state for trading decisions

Weekly Risk Assessment

• Calculate weekly/monthly drawdown
• Review risk-adjusted performance metrics
• Assess position sizing effectiveness
• Update stop-losses based on market conditions
• Plan upcoming week's risk budget

Emergency Risk Scenarios

Flash Crash Response

1. Don't panic - avoid emotional decisions
2. Check liquidation levels immediately
3. Add margin if needed and available
4. Consider hedging rather than closing profitable long-term positions
5. Review what went wrong afterward

Exchange/Platform Issues

1. Have backup plans and platforms ready
2. Keep some funds on multiple platforms
3. Don't overtrade during platform instability
4. Contact support immediately for position-related issues

Black Swan Events

1. Accept that extreme events happen
2. Maintain smaller position sizes during uncertain periods
3. Keep emergency cash reserves
4. Don't try to "catch falling knives"

Risk Management Tools Checklist

Essential tools to use:

• Stop-loss orders on every position
• Position size calculator
• Risk/reward ratio assessment
• Margin monitoring alerts
• Trading journal for review
• Portfolio correlation analysis

Advanced tools:

• Value at Risk (VaR) calculations
• Monte Carlo simulations for position sizing
• Options for hedging (if available)
• Automated risk management bots
• Real-time portfolio heat maps

Quick Risk Reference

Position Size Quick Guide

Account Size	1% Risk	2% Risk	Max Position (10x leverage)
$1,000	$10	$20	$200
$5,000	$50	$100	$1,000
$10,000	$100	$200	$2,000
$50,000	$500	$1,000	$10,000

Leverage Risk Table

Leverage	Liquidation Risk	Suitable For
1x-2x	Very Low	All traders
3x-5x	Low	Beginners+
6x-10x	Medium	Intermediate+
11x-20x	High	Advanced+
20x+	Very High	Expert only

Emergency Contact Numbers

When things go wrong:

• Platform support: [Contact through app]
• Community Discord: [Link]
• Emergency liquidation hotline: [If available]

Critical Reminder

Risk management is not optional - it's the difference between long-term success and account liquidation. Start conservative and gradually increase risk as you gain experience and confidence.

Final Risk Management Principles

1. Consistency Over Perfection: Follow rules consistently rather than trying to time perfect entries
2. Preservation Over Profits: Protecting capital is more important than making profits
3. Process Over Outcomes: Focus on following good processes rather than individual trade results
4. Adaptation Over Rigidity: Adjust risk based on market conditions and personal circumstances
5. Education Over Speculation: Continuously learn and improve rather than gambling

Remember: The goal isn't to never lose money - it's to lose small amounts when wrong and make larger amounts when right, while protecting your trading capital for long-term growth.