Risk amount of account?

[montpro]

Hi there,
When people talk about not putting at risk more than x % of your account what exactly does that mean?

Say I have a mini account which buys in £10 lots and I have £10,000 in the account. If I made a rule that I wouldn't put at risk more than 2% of my account would that be (a) never trade more than £200 at a time or (b) trade say £10 but have a stop loss at -£190 so as never to risk more than the 2%?

I guess it would be (b) but need clarification from more experienced traders.

many thanks

 

[Masquerade]

It'd be don't risk more than 2% of your account on a trade.

So if you have £10,000 you'll risk £200, if you have £11,000 you'll risk £220 and so on.

 

[montpro]

ok so it's (b)?

I think I'm going to stick with 2%, anyone else got any ideas on what the figure should be?

 

[Masquerade]

The answer would be to never have more than 2%/trade exposed at any one time.

But then if you start taking on another trade then perhaps you have to assume your first was a loss to give you the correct 2% figure.

 

[BBPI_FXTrader]

i use the 1% rule, i never risk more than 1% of my account on any trade

 

[intradaybill]

Hi there,
When people talk about not putting at risk more than x % of your account what exactly does that mean?

Say I have a mini account which buys in £10 lots and I have £10,000 in the account.

Do you mean £10K lots?

This is the formula to calculate the number of lots n based on the stop p and x% risk:

n = C x/p

C is the bankroll and p the worth of your position pip stop in currency.

Example: 20 pip stop, 10K account, x = 0.02 : n = 10000 x 0.02/20 = 10 lots.

It is easy to see why this is the correct number of lots. If you hit your stop, each lot is down 20 pips times 10 lots equals 200 pips or since you do mini ones it is also equal to £200, which is equal to 2% of your account value.

I hope this helps.

Bill