{"term":{"slug":"forex-risk-management","term":"Forex Risk Management","definition":"The practice of controlling risk on currency pair trades using pip-based stop-losses, lot sizing, and correlation management. On prop firm accounts, forex risk management must fit within daily loss limits expressed in dollars, converting pip risk to dollar risk before every trade.","extendedExplanation":"Forex prop firm trading requires converting abstract pip risk into dollar risk before every position. The chain: intended stop-loss distance (pips) times pip value times lot size equals dollar risk per trade. That dollar risk must be below your per-trade budget and your remaining daily loss room -- calculated before, not after, the trade.\n\nCurrency pair correlation is a hidden risk multiplier. EUR/USD and GBP/USD are highly correlated (often 0.85+), meaning holding both simultaneously effectively doubles your exposure to USD weakness or strength. If your daily loss limit is $3,000 and you have EUR/USD and GBP/USD positions each risking $1,500, a broad USD rally can hit both stops simultaneously and wipe your daily limit on what appears to be two separate trades.\n\nFirms like FTMO and FundedNext support forex trading with leverage up to 1:100. But high leverage is a trap if it is used to justify oversized positions. The correct use of leverage on a prop firm account is to achieve proper pip-based position sizing at low dollar risk -- not to maximize position size. A 10-pip stop on EUR/USD with $500 risk requires 5 standard lots at 1:100 leverage, which is practical. Trying to trade 20 lots to make more money with the same stop is the behavior that terminates accounts.","exampleWithNumbers":"FTMO $100K, $5,000 daily loss limit. Trading EUR/USD and GBP/USD simultaneously. EUR/USD: 1.5 lots, 40-pip stop = 1.5 * 40 * $10 = $600 risk. GBP/USD: 1.5 lots, 40-pip stop = $600 risk. Both pairs drop 40 pips simultaneously (correlated USD rally during NFP). Total realized loss: $1,200 in minutes -- 24% of daily limit on what felt like two conservative trades. Adding a third correlated pair (AUD/USD) at the same size would have risked $1,800 total, triggering the daily limit with 3 stops hit.","category":"risk","relatedTerms":["pip-value","lot-size","daily-loss-limit","position-sizing","risk-management-for-prop-traders"]},"_links":{"self":"https://runvigil.app/api/glossary/forex-risk-management","page":"https://runvigil.app/learn/forex-risk-management","allTerms":"https://runvigil.app/api/glossary","learn":"https://runvigil.app/learn"}}