Bankroll
The total pool of money you've set aside for trading. Position sizing is expressed as a percent of bankroll, which is what keeps any single loss survivable.
Thinking in bankroll terms, rather than fixed dollar bets, is what separates disciplined traders from gamblers. A sound rule risks only a small percent of bankroll per trade so a cold streak can't end you.
Bankroll is the pool of capital you have set aside for trading, separate from money you need for living expenses. Treating it as a distinct, defined amount is the foundation of risk management, because every position-sizing decision is made as a fraction of the bankroll rather than as a raw dollar figure.
The size of your bankroll relative to your bets determines how much variance you can survive. A bet that is a small slice of a healthy bankroll is survivable through long losing streaks; the same bet against a thin bankroll risks ruin. This is why bankroll management, not trade selection, is what keeps traders solvent long enough for an edge to compound.
A disciplined bankroll is also a psychological tool. Knowing the exact amount you are willing to risk, and never reaching beyond it, removes the temptation to chase losses with money you cannot afford to lose. Funding the bankroll only with discretionary capital is the first rule of trading responsibly.
With a $10,000 bankroll and a rule to risk no more than 2 percent per trade, your maximum position is $200. If the bankroll grows to $12,000, that 2 percent rule scales your position to $240, keeping risk proportional as the account changes.
Frequently asked questions
What is a bankroll?
It is the capital you dedicate to trading, kept separate from money needed for living expenses. Position sizes are set as a fraction of it rather than as fixed dollar amounts.
Why is bankroll management important?
Because the size of your bets relative to your bankroll determines whether you survive normal losing streaks. Good bankroll management keeps you solvent long enough for your edge to play out.
How much of my bankroll should I risk per trade?
Most disciplined traders risk a small percentage, often 1 to 5 percent, sometimes guided by fractional Kelly. The aim is to make ruin extremely unlikely while still allowing growth.