Most people set up a trading bot by choosing a strategy and turning it on. That is the wrong order. The first job is to decide how much the bot is allowed to lose, because a bot without risk settings is a machine that can keep trading through a crash, a bug or a broken strategy while you sleep. The strategy decides how the bot tries to make money. The risk settings decide whether a bad day becomes a bad month or an empty account. This guide explains the five risk settings every bot needs and how to set them sensibly.

Stop loss: the setting that defines every trade

Every trade a bot opens should have a stop loss, a price at which the trade closes automatically for a defined loss. The stop loss should be set by the strategy, not by hope: it goes where the trade idea is proven wrong, such as below the recent swing low for a long trade. A bot that trades without stop losses is relying on price always coming back, which works until the one time it does not. Check that your bot actually places the stop loss on the exchange as a real order, not just as a mental note in its own code. If the bot crashes or disconnects, a stop loss that only exists in the bot's memory disappears with it.

Position size: how much each trade risks

Position size is the most important risk decision, because it decides how much a single losing trade costs. The standard professional rule is to risk no more than one to two percent of the account on any one trade. On a 1,000-dollar account, that means risking 10 to 20 dollars per trade, which the bot should calculate from the distance to the stop loss. A bot that risks a fixed dollar amount regardless of the stop distance is not managing risk at all. Set the risk percentage in the bot's settings, and test it: place one paper trade and check that the loss if the stop is hit really equals the percentage you intended.

Daily loss limit: the circuit breaker

A daily loss limit stops the bot for the day once losses reach a set amount, such as two percent of the account. This is the setting that prevents a bad morning from becoming a catastrophic day, because bots, unlike humans, do not get tired or scared. They will happily take fifty losing trades in a row if their rules tell them to. The daily limit should be enforced by the bot and, if possible, by the exchange as well, so that even a bug cannot override it. When the limit is hit, the bot stops, you review what happened, and you decide whether to restart it tomorrow. Never raise the limit in the middle of a losing day.

Maximum drawdown: the account-level kill switch

Maximum drawdown is the largest fall from the account's peak value that you will tolerate before stopping the bot entirely. A common setting is ten to fifteen percent: if the account falls that far from its highest point, the bot stops and stays stopped until you review the strategy. This setting protects you from slow bleeding, where a bot loses a little every day for weeks and nobody notices until half the account is gone. Set the drawdown limit before you start, write it down, and treat it as a rule, not a suggestion. A strategy that hits its drawdown limit has failed its test, and the correct response is to stop and investigate, not to reset the limit and hope.

Trade count and time limits

Two more limits are worth setting. A maximum number of trades per day prevents overtrading, which is the most common way bots lose money through fees. A bot that takes a hundred trades a day needs a very high win rate just to cover costs. Time limits stop the bot during dangerous periods, such as major news releases or the first minutes after the market opens, when spreads widen and price moves are chaotic. Many bots let you set a trading schedule, such as only trading during the London session. Use it. A bot that trades at the right times and sits out the dangerous ones will outperform a bot that trades constantly.

A risk settings checklist before going live

Before any bot trades real money, verify each setting on a paper account. Place a trade and confirm the stop loss appears on the exchange. Confirm the position size matches your risk percentage. Trigger the daily loss limit on purpose and confirm the bot stops. Check that the drawdown limit works and that the bot cannot exceed its trade count. Write all five settings down in your trading journal, and review them monthly. Risk settings are boring, which is why most traders skip them, but they are the difference between a bot that loses a little when it is wrong and a bot that loses everything. Set them first, and the strategy second. Trading involves substantial risk of loss; never trade with money you cannot afford to lose.