What % of my capital should I be useing

[MikeyG]

Hi I just started working a demo acc and making a steady profit, thing is if I invest real money I wont have a huge amount of capital. I am planing on being a scalper because it suits the way I trade so if I can watch every trade as it unfolds does it make (cents) to risk a larger % of my capital. At the moment I am trading with 2% and making a profit, I dont want to be greedy but I still want to make my capital work if it makes for good business. Also my Demo gives 200/1 leverage. Do most brokers give that kind of leverage to first time traders? Thanks for reading, I am a very green newbie but I have spent alot of hours at babypip school and i think i have found something that may be a long term money earner if I can start on the right foot.

[PipBandit]

There's various schools of thought but the general thing you'll probably hear is that you shouldn't be risking more than 2% of your account. I go for a bit less myself - usually around 1%. If you stick to only having 2% of your account in play at any one time then you won't need to be worrying about leverage. There's no need for 200-1 leverage anyway in my opinion and is only something more likely to get you in trouble than help you. I set my account to 20-1 on Oanda and haven't had any issues with it.

[daydreamer65]

No it don't make (cents) to risk a larger % of your capital, slow & sure
is the best way.

If you start chopping & changing risk % then how will you determine
when to increase the bet? When to decrease the bet?

Increase your capital from gains in your trading, but also add external
money from savings etc. This will then increase your risk %.

Never though risk money that you cannot afford to lose.

From the school:

Be Patient. Stay Disciplined. | Graduation Speech | Learn Forex Trading

[MikeyG]

Thank You for your reply PipBandit. Correct me if I'm wrong, but if you trade 1% at a 20/1 leverage then you are only trading 20% of what your capital is? If I do that with $10,000 capital then 1%=$100x 20/1 leverage=$2000. Trading EUD/USD the pip value would be around 0.14 so i would have to make a profit of 100 pips to gain $14? Is this right or am I calculating this wrong? I seems alot of work for a return of 0.14% of my capital. I know there are huge risks when trading but as I said earlier if I was scalping would it not make for better business senses to invest more of the capital.

[PipBandit]

I've never thought about leverage when working out my positions. If you start with $10,000 and are willing to risk 1% of your account then that means you're ready to risk $100. You then adjust your position size then to work out where you want to place your stops. So if you're willing to give a trade a 50 pip stop for example then you can afford to enter a position of $2 per pip. If the trade went against you by 50 pips you'd be out 50x$2 = $100. If you wanted a 100 pip stop you could enter with a position of $1 per pip, etc.

In the first example above with a 1% risk and a 50 pip stop if you closed out the trade for 100 pips profit you'd gain $200 or 2%. With the second example you'd have 100 pips profit and you'd gain $100 or 1%. So working out good value entries is important.

If you've got a lot of experience and have a system that consistently has made you money over the years then maybe you could bump the risk level up but it's critical to manage your risk so that you can handle the bumps in the road along the way without destroying your account (like I did to my first live account).

[muddbuddha]

Risk percentage can also apply to STOP loss placement. Typically, the rule of thumb is one mini lot per $5,000 in the account.
Trading on Margin on a major pair would currently allow for 50:1, utilizing around $300 of potential buying power.

Properly placing your STOP and LIMIT orders to allow for a minimum of 2:1 reward over risk and ensuring that the STOP level is no more than 2% of deposit if hit is the easiest method.

There are litterally dozens of money management techniques. Using the easiest method is normally the best.

[gasanvill]

Hi I just started working a demo acc and making a steady profit, thing is if I invest real money I wont have a huge amount of capital. I am planing on being a scalper because it suits the way I trade so if I can watch every trade as it unfolds does it make (cents) to risk a larger % of my capital. At the moment I am trading with 2% and making a profit, I dont want to be greedy but I still want to make my capital work if it makes for good business. Also my Demo gives 200/1 leverage. Do most brokers give that kind of leverage to first time traders? Thanks for reading, I am a very green newbie but I have spent alot of hours at babypip school and i think i have found something that may be a long term money earner if I can start on the right foot.

Hey
As a rule of thumb never risk more that 3% of your account. So you can have 6 positions open at the same time but, each one risking 0.5%.

When you have more experience, this gets a little more complex, for example after trading for 5 years I have adapted my risk according to the timeframes. In my case I have better win/loss and risk/reward ratios on the 4h and daily chart, but I also trade the 1h and 30m charts because they give me good ratios too, so I risk a little more on the bigger timframes. But this will take you a lot of experience, and a lot of demo trading. So stick with the general rule for now!

Hope that helps..

[themoviemancan]

In the first example above with a 1% risk and a 50 pip stop if you closed out the trade for 100 pips profit you'd gain $200 or 2%. With the second example you'd have 100 pips profit and you'd gain $100 or 1%. So working out good value entries is important.

If you've got a lot of experience and have a system that consistently has made you money over the years then maybe you could bump the risk level up but it's critical to manage your risk so that you can handle the bumps in the road along the way without destroying your account (like I did to my first live account).[/QUOTE]


[QUOTE=PipBandit;263453]I've never thought about leverage when working out my positions. If you start with $10,000 and are willing to risk 1% of your account then that means you're ready to risk $100. You then adjust your position size then to work out where you want to place your stops. So if you're willing to give a trade a 50 pip stop for example then you can afford to enter a position of $2 per pip. If the trade went against you by 50 pips you'd be out 50x$2 = $100. If you wanted a 100 pip stop you could enter with a position of $1 per pip, etc.


This makes a lot of sense to me, thanks. The whole chapter in pip school was kinda confusing, but you explained it well. So your saying that will a 50 pip stop loss at $2 a pip your margin used would be $5000 on a $10,000 account, depending on the exchange rate for the pair you are trading. How much capital would you be controlling if the exchange rate was a 1:1 ratio... aka 1 dollar for 1 euro. $10,000? or only $5000?

[SimonTemplar]

I agree with much of what has already been posted, in particular PipBandit, but would add one thing: in my opinion, if you are viewing this as the start of a career, then the route to a higher financial return should not be to increase the risk per trade but rather, over time and once you are confident that you have a consistent system, to increase the account size. If you can hit 10% a month, then on a $500 account that is 'only' $50 in your first month, nowhere near enough to live on (outside of some places you really don't want to be living). But if you get to the point where you are regularly hitting that 10%, then that is the point at which to work on increasing your account size to increase your return. During the period when your trading is not producing enough income to live on, I would advocate reinvesting any profits back into your trading account, ie. don't withdraw anything. This would grow your account faster than you might think. Once you are really confident, it is obviously an option to fasttrack this by looking at other ways to deposit more funds, but obviously this depends on individual circumstances.

I am rambling, but my point is this: if you hit, say, 10% a month (and in my opinion if you find you have a knack for this then 10-30% is a very reasonable expectation) then there is a point at which that return can provide you with an income. Increasing the risk per trade can throw out your whole strategy, it can mean that any slump or drawdown - and they do happen - could wipe you out, or at least reduce your account so much that it takes a very long time to recover. With a percentage return, after all, the income is much reduced from a reduced account.

So while it is frustrating to be in a career where your percentage return could be bringing you in a good income if only the account size were greater, I do think that the sustainable solution to this should be to increase the account size, rather than the risk per trade. Opinions on the best percentage to risk vary on here, but I think that the majority are in the 1-3% per trade range (feel free to disagree, there, majority..!)

I risk 1% of my account per trade. I am happy to have more than one trade open at a time should I see more than one decent setup, each of which would risk 1%, but only if they are not each backing the same move.

I do hope that this does not sound negative. Someone said the same to me, early on, when I posed the same question, and they were right.

ST