How to calculate risk management in forex

One way is to use a Risk to Reward (RR) ratio.

RR = (Stop Loss Amount/Take Profit Amount)

If you set your stop loss such that you will only lose $10 if the market doesn't favor you, and you set your Take Profit such that you will gain $60 if the market favors you, then your RR ratio becomes ($10/$60) = 1:6 or 0.1. This means you are risking $1 to get $6.

An RR ratio below 1.0 is considered safe so from the above example our RR was 0.1 which is safe. Many people consider 1:2 as the ideal RR ratio and some will argue that an RR of 1:6 is greedy but it depends on your risk tolerance.

An RR ratio from 1.0 and above, is considered high risk and unsafe because you will be risking more to get less; which does not make a good business sense.