Risk
Risk is the amount of money you are willing to, and could possibly, lose if your trade or investment is not successful.
Risk Management
Risk management is the planning and strategy developed to reduce your risk – or the amount of money you might lose – in the stock market.
Some people say you should only risk 1-2% of your entire portfolio per trade. This means you are only willing to lose 1-2% of your entire portfolio.
Example of Risk Management
Your entire portfolio value is $10,000. The stock you want costs $2 per share, and you want to buy 1000 shares. Total cost to purchase the 1000 shares is $2000 (not including commissions).
Risking 1% of your entire portfolio value: You will risk 1% of your entire portfolio, or $100 dollars. The share price you should set a stop loss at, with 1% risk, is 1.90 per share.
Risking 2% of your entire portfolio value: You will risk 2% of your entire portfolio, or $200 dollars. The share price you should set a stop loss at, with 2% risk, is 1.80 per share.