Risk, margin and exposure

Size from a loss budget

Choose a maximum virtual risk budget first. Estimate loss per unit between intended entry and stop, using the instrument contract and currency conversion. Divide the budget by that per-unit loss, then round down to allowed size. A zero-distance or missing stop cannot justify unlimited size. A stop is an instruction, not a guarantee against gaps or outages.

Three different constraints

Margin is collateral; exposure is gross notional; stop risk estimates a modeled adverse move. They are not interchangeable. LEGION server policy limits entry risk to 1%, daily realized loss budget to $3,000, gross exposure to $1,000,000 and margin utilization to 50%. Server validation remains authoritative even if a client-side estimate differs.

Manage the whole portfolio

Several correlated instruments can concentrate risk. Moving a stop to break-even may reduce modeled stop risk but does not erase spread, history or outage risk. Trailing stops should tighten in favorable moves and never automatically weaken protection. Never widen risk simply to make a rejected request pass.

Practice exercise

Use the DEMO risk calculator with a nonzero stop. Compare its estimate with the server acceptance or rejection, and explain why free margin is not an available loss budget.

Open trading terminal (requires a customer account). Compare illustrative indicators.