What is Bankroll Management? The Complete Beginner's Guide

Bankroll management is the practice of managing your dedicated funds for trading, gambling, or sports betting to minimize risk and maximize longevity. It's the difference between sustainable success and going broke.

Why Bankroll Management Matters

Without proper bankroll management, even winning traders and bettors eventually go broke. Here's why:

1. Protects Against Variance: Every activity involving risk has natural ups and downs. Proper bankroll management ensures you survive the downs.

2. Prevents Emotional Decisions: When you risk too much, you make emotional decisions based on fear or greed rather than logic.

3. Enables Long-Term Success: The goal isn't to win big once - it's to stay in the game long enough for your edge to play out.

The Basic Rules of Bankroll Management

1. Separate Your Bankroll

Your bankroll should be completely separate from money you need for living expenses. Never risk money you can't afford to lose.

2. The 1-5% Rule

For most activities:

• Conservative: Risk 1-2% per trade/bet
• Moderate: Risk 2-3% per trade/bet
• Aggressive: Risk 3-5% per trade/bet (only with proven edge)

Never risk more than 5% of your bankroll on a single trade or bet.

3. Track Everything

You cannot manage what you don't measure. Log every:

• Profit
• Loss
• Deposit
• Withdrawal

Bankroll Management by Activity

Trading (Stocks, Crypto, Forex)

• Start with at least $1,000-$5,000
• Risk 1-2% per trade maximum
• Use stop losses on every trade
• Track your win rate and average win/loss

Poker

• Cash Games: 20-30 buy-ins minimum
• Tournaments: 50-100 buy-ins minimum
• Move down in stakes if you lose 25% of your bankroll

Sports Betting

• Risk 1-3% per bet (unit size)
• Never chase losses
• Focus on value, not winning every bet
• Track your closing line value (CLV)

Common Bankroll Management Mistakes

1. Starting Too Small

If your bankroll is too small relative to your activity, you'll either:

• Risk too much per trade/bet (high risk of ruin)
• Make such small bets that fees eat your profits

2. Increasing Bet Size After Losses

This is called the Martingale strategy, and it's a guaranteed way to go broke. Never double down to "make back" losses.

3. Not Tracking Results

Without tracking, you don't know:

• If you're actually profitable
• Which strategies work
• When you're tilting or making emotional decisions

4. Mixing Bankrolls

Keeping your trading account, poker funds, and betting account separate helps you:

• Track performance by activity
• Prevent one bad streak from affecting everything
• See which activities are actually profitable

Advanced Bankroll Management Concepts

Kelly Criterion

The Kelly Criterion is a mathematical formula that tells you the optimal bet size based on your edge and odds. Most pros use "fractional Kelly" (25-50% of the Kelly recommendation) to reduce variance.

Risk of Ruin

This calculates your probability of losing your entire bankroll given:

• Your win rate
• Your average win/loss ratio
• Your bet sizing

The goal is to keep your risk of ruin below 5%, ideally below 1%.

Position Sizing

Different opportunities have different risk levels. You might risk:

• 2% on high-confidence trades
• 1% on medium-confidence trades
• 0.5% on speculative trades

How to Start Proper Bankroll Management Today

1. Calculate Your Current Bankroll: Add up all funds dedicated to your activity

2. Set Your Unit Size: Decide what % you'll risk per bet/trade (start with 1-2%)

3. Start Tracking: Use a spreadsheet or app to log every transaction

4. Review Weekly: Look at your results every week to identify patterns

5. Adjust as Needed: If you're losing, reduce bet size. If you're winning consistently, you can gradually increase.

The Psychology of Bankroll Management

The hardest part of bankroll management isn't the math - it's the discipline. You need to:

• Stick to your limits even when you "feel" like a bet is a sure thing
• Accept variance as part of the process
• Avoid tilt after losses
• Not get overconfident after wins

Proper tracking helps with all of this by giving you objective data instead of relying on feelings.

Conclusion

Bankroll management is the foundation of sustainable trading, poker, and betting success. It's not sexy, but it's essential. The rules are simple:

1. Separate your bankroll from living expenses
2. Never risk more than 1-5% per trade/bet
3. Track every transaction
4. Review and adjust regularly

Master these basics, and you'll outlast 90% of traders and bettors who ignore bankroll management.

Start tracking your bankroll today - your future self will thank you.