when people say u should trade around 2% on each trade. is that 2% of your capital or 2% of your leverage?
I trade 8% of my account. I am comfortable at this level. Trade at whatever you feel comfortable with. Whatever you are comfortable with losing?
but do you trade 8% of ur initial capital or the total leverage available to you ?
It is 2% of your capital and this is way too high for most. Think about it 10 successive losses you are down 20%. Trade it is very unusual and obviously that works for him so thats OK but he couldnt withstand 10 successive losses. My worst streak (since learning to trade and 3 yrs into my career) has been 6-30 so you can begin to see what sort of losses you might have to withstand even once you know what you are doing
if it’s 2% of your capital, then whats the point of leverage ?
Good question. All it means is that you have less on deposit with your broker. Take some figs. Assume a 100,000 account then 2% on a 20 pip stop means I can afford to lose $2000 on the trade and so can take 10 contracts of GU. This is 1million dollars (so I have magnified my possible returns 10 fold over the 1 contract I could buy with my 100,00). I could easily manage this with 20,000 on deposit with my broker and the rest held against my house mortgage for instance
I am unusual? I’ve only heard that once before. You’re right, my account would take a very big hit if I lost 10 in a row. That has never happened but it might tomorrow, who knows. I’ve never thought about 10 losses in a row. Nor do I want to.
I am fortunate that only few sl get hit while only trailing stops get hit more often. Maybe I am unusual. Who knows? LOL. I am still learning. Still demoing.
I will be going LIVE soon…very soon!
[QUOTE=Trade It;27371] [B]I’ve never thought about 10 losses in a row. Nor do I want to. [/B]
My rule of thumb is take the worst losing streak you have had, double it and use that figure to work out what the maximum drawdown is you are prepared to take. That will tell you what your comfort zone is regarding risk per trade
Thats an idea! Never thought about doing it that way. Kinda like a worse case scenario. Thanks Tony!
That’s definitely something every trader should do. Too many folks think first about how much they can make - the offensive side of trading. Traders that last, though, think about defense first.
We should make it clear. When people talk about 1% or 2% or whatever, they are normally talking about how much of their account they are risking, not the amount of the account being used to trade a given position. The two are not the same thing.
Thank you for clearing that up.
It is taking me forever to choose a broker, so in FX I don’t have any experience, but in equities I trade about 10% of my capital with a stop loss at 5% loss on that position.
EDIT: One to many zero in the 10% of my capital section. Sorry.
2% of your capital is high imo especially for inexperienced traders. I recommend only trading with 0.25% of your capital or lower.
That’s what the brokers use to entice you to open a trading account. Hehehe.
.25% is awfully low don’t you think? That is definitly on the safe side for sure.
Forex Ninja’s actually not far off the mark. Leverage in the wrong hands is the brokers most potent weapon, & boy do they milk it for every last drop of benefit they can muster!
You won’t find the pro’s treating leverage with the contempt in which is witnessed in many of the posts on these retail boards.
Why do you suppose the thick end of the hobby traders end up in the gutter?
There are 3 primary reasons amateurs blow their accounts;
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A total disregard for & lack of respect towards leverage & it’s dangers.
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Overtrading an undercapitalized account.
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And no structure or trading plans.
To be honest, the retail brokers don’t even have to work too hard to attract the dollars into their pockets. Punters are stepping all over one another to hand it to them on a silver platter
Oh yes I totally agree with you on leverage. Leverage is a double bladed sword…I love that saying!!
I just couldn’t imagine only using .25% of my account in trading. But thats just me. I risk a little more than that, but thats what I am comfortable with.
I use 1% of my account on open positions.
However, some people use up to 10% of their account on open positions.
It depends on trader’s personality more.
i use 5-6% of my account on any given position. however, i can afford to lose 5% on a position because i know i will make it back eventually