Position sizing is something that I personally have never seemed to struggle with, Maybe it’s my inexperience showing that I think this, but here is my understanding of position sizing and how to determine it based on your strategy.
My view is that every strategy should determine a stop position. I personally never trade without a stop loss order in place, the position of which is determined by the strategy which I am trading.
The best way to describe position size calculation is by way of example. I am interested in buying BP at 400.. My strategy indicates I want to place my stop at 375. Therefore the risk in points is 400-375 = 25points risk.
My account size is £10000. The maximum I would ever risk on one trade is 1% of total funds. If you are new to spread betting you want to risk less, Say 0.5% or 0.25% until you are comfortable with the strategy you employ.
Using the maximum 1% risk for £10,000 this means £100 risk on one trade. Now we can calculate the position size. We divide our maximum monetary risk (£100) by the points of risk we calculated earlier(25) therefore 100/25 = 4.
Our maximum risk on this trade will be £4 per point.
If we were to risk less say 0.5% then the calculation is 50/25=2. So £2 per point.
0.25% 25/25=1. So £1 per point.
If you are physically buying and selling shares then £1 per point is equivalent to buying 100 shares. £4 per point = 400 shares and so on.
Use my free position size calculator.
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