Risk Management

Question 1

What is the #1 rule of trading?

Answer 1

Protect your capital — survival first, profits second.

Question 2

What % of account balance should you risk per trade?

Answer 2

Typically 0.5–1% of account equity.

Question 3

What does “R” stand for in risk management?

Answer 3

R = the dollar amount you risk per trade.

Question 4

If your account is $5,000, how much is 1R at 1% risk?

Answer 4

$50.

Question 5

Why is position sizing important?

Answer 5

It ensures each trade’s risk is consistent and manageable.

Question 6

What is a Daily Loss Limit (DMLL)?

Answer 6

The max you can lose in a day before stopping.

Question 7

If you risk $50 per trade and DMLL is $200, how many losses can you take before stopping?

Answer 7

4.

Question 8

Why set a max number of trades per day?

Answer 8

To avoid revenge trading and overtrading.

Question 9

What’s a typical recommended DMLL % of account?

Answer 9

Around 2–3% of account equity.

Question 10

Why does Topstep enforce daily loss limits?

Answer 10

To train discipline and prevent account blow-ups.

Question 11

What’s a hard stop loss?

Answer 11

A predefined level placed in your broker system before trade entry.

Question 12

What’s the risk of trading without a stop loss?

Answer 12

One trade could wipe out the account.

Question 13

What’s a trailing stop loss?

Answer 13

A stop that moves with price to lock in profit while limiting downside.

Question 14

Why is “mental stop loss” dangerous?

Answer 14

Emotions may prevent you from actually closing the trade.

Question 15

How do ATR-based stops work?

Answer 15

They use average volatility to size stops appropriately (e.g., 1.5× ATR).

Question 16

What’s the minimum account size to trade MES safely?

Answer 16

Around $2,500–$5,000.

Question 17

Why trade micro contracts (MES, MNQ, MGC) instead of minis (ES, NQ, GC) at first?

Answer 17

Lower tick value and margin = smaller risk.

Question 18

What’s the tick value of MES?

Answer 18

$1.25 per tick.

Question 19

What’s the margin requirement for MES?

Answer 19

About $1,200 overnight, ~$50–$100 intraday (varies by broker).

Question 20

Why keep at least 3–6 months of living expenses separate from your trading account?

Answer 20

To reduce pressure and avoid trading scared.

Question 21

What’s drawdown?

Answer 21

The amount equity falls from a peak to a trough.

Question 22

What’s maximum drawdown tolerance?

Answer 22

The largest % loss you can handle before stopping or adjusting.

Question 23

Why is compounding important in futures trading?

Answer 23

Small consistent gains snowball when losses are controlled.

Question 24

Why do pros say “risk of ruin” matters?

Answer 24

It measures probability of blowing up if risk is too high.

Question 25

What’s the main difference between an amateur and a pro trader?

Answer 25

Pros focus on risk management; amateurs focus only on profits.