Curriculum·R403 Risk Management as the Actual Product·about 42 min
Risk per trade
By the end of this lesson you can
- →Define risk per trade as a number decided before entry rather than discovered afterwards
- →Compute the drawdown a losing streak produces at each risk level
- →Show why a position with no predetermined exit has unbounded risk regardless of size
- →Explain why doubling down to recover requires capital that grows exponentially
Senior · enrolled learners
This lesson opens with Barings Bank and account 88888, February 1995.
- What happened
- Nick Leeson traded futures in Singapore for Barings and recorded losses in account 88888, an error account intended for logging trainee mistakes and clearing daily. Rather than closing losing positions he added to them, betting that the Nikkei would recover, and after the Kobe earthquake of 17 January 1995 the index fell instead. By mid-February 1995 he held roughly half the open interest in the Nikkei future and about 85 percent of the open interest in the Japanese Government Bond future. On 23 February he left Singapore, leaving a hole of about £827M. Barings, then the oldest merchant bank in Britain, was declared insolvent on 26 February and sold to ING for a token £1.
- The decision point
- There was no moment at which the loss became too large, because no size had ever been named as too large. Every individual decision was to hold and add, which is defensible once and catastrophic as a policy, and nothing in the process required anybody to state in advance what this position was permitted to cost. Risk per trade is a number you decide before entry. If you do not decide it, the number is whatever the market eventually takes.
- Recorded loss
- $1,300,000,000
What you will be able to answer
- →What is risk per trade?
- →What does 20 losses in a row cost?
- →Why is doubling down unbounded?
- →What makes risk unbounded regardless of size?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.britannica.com/event/bankruptcy-of-Barings-Bank
- https://www.glynholton.com/notes/barings_debacle/
- https://humanfactors101.com/incidents/barings-bank/
- https://www.federalreservehistory.org/essays/ltcm-near-failure
Confidence high·Volatility low·Reviewed 2026-08-07·Owner unassigned
Contested
The Barings loss is reported at about £827M and about £830M depending on the date of the accounting, and dollar equivalents around $1.3B depend on the exchange rate used. Neither figure is load bearing. The open interest fractions, being roughly half the Nikkei future and about 85 percent of the JGB future, are the numbers this lesson relies on.
R402-03 established that loss equals size times distance and that leverage is a financing choice. This lesson owns the first input, being the amount you are willing to lose. R403-02 owns converting that into a position size. Keep the split.