How much capital do you use per trade

I day trade and slowly making consistent profit. What I’m still trying to work out is how much of my capital to use per trade? What do other people do? Obviously bigger the capital bigger the risk but also why would you have unused capital??

There is a course on the School of Pipsology on how to calculate your position sizing and there is also a free position calculator tool here in Babypips.

If we risked all of our capital in one or two trades we might as well go to the casino and at least have some fun while losing our money. You shouldn’t use all of your capital in a given moment because you put yourself in too much risk. If you lose one day, you can come back the next day and trade again because you have remaining capital and haven’t lost it all the previous day.

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I am not risking all my capital as I have a stop loss

You can still risk almost all of you capital even if you use a stop loss by having too big of a position size. That’s why adjusting you position size is important. That’s what I understand that you still trying to figure out.

If not I have misunderstood, if so you can explain in a little bit more detail and I will try to help you.

So for example (I trade using IG). If I have £2000 in capital I could place a trade worth £1000 with a 30 point stop. If the stop goes I lose £60. If I use all £2000 then the stop is £120.

Being risk adverse I should only trade at £500 with a stop of £30 but then I am not making full use of my capital.

Hopefully that makes sense

Because then you risk too much. £120 is 6% if the capital is £2000. So if you have a few losing trades in a row you will be in bigger drawdown than if you used £1000 or £500. That’s why it’s not needed to use your full capital because you risk too much.

Let’s say you lose 5 trades in a row with risking £120 per trade.
5x120=600£ That’s 30% drawdown. That’s a big drawdown and to get back to your starting capital you don’t need 30% but 43%. If you risked £30 instead the drawdown would be £150 or 7,5%.

That’s my point that you don’t have to use all of your capital and because of leverage you can open position way bigger than your initial capital is, which is even more dangerous since you multiply your risk per trade and have even bigger drawdowns or even blow your account entirely. I don’t know what leverage IG has but if it’s 1:100 you can open a 2 lot position(£200.000) and not just 0.02(£2000).

That’s why I think it’s more important to be focused on how much to risk per trade than how much capital is used per trade.

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Thank you makes sense

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If you have any other questions regarding this please ask, because it’s really important to understand risk management. Otherwise I am glad I could help.

Thanks real appreciate the help

Wouldnt slippage be a factor somewhere here?

Only during big news announcements, otherwise you are unlikely to experience slippage with this trading size.

As a day trader I risk 1% per trade, with a max of 5% of open trades. That’s why the bigger the account size, the larger the return. Money makes money, and as such, I certainly wouldn’t ponce around with a £100 account size.

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I think that serves as a first step trading live after being profitable in demo. Then add money to your account each month to increase position sizes.

But you can’t open a small account expecting one trade to go to the moon and 150x your £5 with high leverage. That’s a fast path to square one.

Whenever, everything goes OK, I increase the level of investments up to 20% a month

It depends actually. I use large leverage when the market moves slow but when the market is volatile, I prefer using narrow leverage.

It completely depends on the trader, you can choose capital as per your requirements.

You just want a straight answer to this question: You gave plenty of detail.

Go for about 2 to 5% of your cap. And only trade 2 to 3 trades a day no more. Your account will be safe and still have another day to trade if you keep your lot sizes small but slowly build up your account then you can increase your positions. The key thing here is DON’T GET GREEDY…
Good luck
TreV

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I leverage flexible leverage in my trading depending on the market condition. More leverage can cause huge loss for a trader.

It depends actually but I know that increased risk ratio is the reason of traders’ failure.