Risk refers to the potential for financial setbacks when market movements go against your trade. All trading involves risk, but smart traders manage it rather than avoid it.
Example:
Buying EUR/USD at 1.1000 with a 1:100 leverage means even a 1% drop could wipe out your entire position.
Types of Trading Risks
Risk Type | Description | How to Mitigate |
Market Risk | Prices moving against your position | Use stop-loss orders |
Leverage Risk | Amplified exposure from borrowed funds | Limit leverage |
Liquidity Risk | Unable to exit trades at desired prices | Trade major currency pairs (e.g., EUR/USD) |
Psychological Risk | Emotional decisions (greed/fear) | Follow a trading plan |
What is Risk Management?
Risk management is the process of:
✅ Identifying potential risks
✅ Measuring their impact
✅ Minimizing capital drawdowns through strategies
Why It Matters:
Risk management is the cornerstone of successful trading. It helps you:
Protect your capital from significant setbacks.
Trade with discipline and avoid emotional decisions.
Stay in the game long-term, even during market volatility.
Types of Risks
CFD trading risk
Trading CFDs is highly speculative, involves significant risk of loss and is not suitable for all investors. Before trading, please read and understand our risk disclosures and warnings.
Volatility
Price volatility directly affects profits and losses. While knowing an instrument's average volatility can help in setting accurate stop loss and take profit orders, volatility often remains unexpected and unpredictable.
This highlights the need for a cautious and well-planned trading strategy.
Tax and regulatory compliance
Managing your tax and legal obligations is solely your responsibility as a trader. This includes:
Filing tax reports
Ensuring compliance with your country's regulations
Meeting payment deadlines
Doto does not provide tax, legal, or regulatory advice. Please consult with professionals to make sure they comply with applicable laws.
Key Risk Management Strategies
Position Sizing
Rule: Risk only 1-2% of your account per trade.
Example: If your account has $1,000, limit risk to $10–$20 per trade.
Doto Tool: Use the "Lot Size Calculator" in-platform.
Stop-Loss Orders
Rule: Automatically closes trades at a predetermined level to prevent excessive drawdowns.
Doto Tool: Set stop-losses based on technical levels (support/resistance), not arbitrary numbers.
Take-Profit Targets
Rule: Always define profit targets before entering a trade.
Doto Tool: Aim for a risk-reward ratio of at least 1:2.
Diversification
Rule: Avoid overconcentration in one asset. Spread risk across:
Different instruments (forex, commodities, indices)
Timeframes (short-term vs. long-term trades)
Doto Tool: Spread trades across 5+ uncorrelated assets.
Leverage Management
Higher leverage = Higher risk. Doto offers up to 1:500 leverage.
Doto-Specific Tools for Risk Management
✅ Negative Balance Protection: Ensures you never lose more than your account balance.
✅ Margin Alerts: Notify you when margin levels are critical.
✅ Demo Account: Practice strategies risk-free with virtual funds.
Common Mistakes to Avoid
❌ No Stop-Loss: "Hoping" the market will reverse often leads to bigger setbacks.
❌ Overleveraging: Using maximum leverage can wipe out your account fast.
❌ Revenge Trading: Chasing previous trades often worsens your strategy.