Risk management

[gtspeed]

Hi

Hope we are all well and heading in the right direction. What are your thoughts to risk management? Do you always stick to a percentage risk or a money value

ie small account £1 a point etc

Regards

 

[barjon]

Hi

Hope we are all well and heading in the right direction. What are your thoughts to risk management? Do you always stick to a percentage risk or a money value

ie small account £1 a point etc

Regards

Decide on the £ amount you want to risk then adjust your position size (x per point) to meet that with your stoploss level.

E.g.: price 1500, stoploss at 1480, so 20 points. Prepared to lose £10 therefore position size must be 50p per point - 20 x 50p = £10.

Doing this way allows you to put your stoploss at a place where you will conclude that you've been wrong.

 

[petetrades]

Here's the unspoken truth, which if spoken would be a service to the trading community and prevent many from getting into trading: there's no optimal or long-lasting way for a trader to manage risk unless they''re safely overcapitalized and risking less than .005% of their capital per trade.

Barjon's equation is misleading because the variable of commissions is left out, which will add up after a year of trading to a subtraction of much capital.

 

[barjon]

Here's the unspoken truth, which if spoken would be a service to the trading community and prevent many from getting into trading: there's no optimal or long-lasting way for a trader to manage risk unless they''re safely overcapitalized and risking much less than .05% of their capital per trade.

Barjon's equation is misleading because the variable of commissions is left out, which will add up after a year of trading to a subtraction of much capital.

yes, unless spreadbetting there will be commission to factor in if you want.

 

[petetrades]

yes, unless spreadbetting there will be commission to factor in if you want.

Commissions and taxes are essential for professional or aspiring professional traders to factor in, not optional for those in countries where it is mandatory. I am not familiar with spread betting but I have read that slippage and wide spreads are common, barjon please come up with an equation with appropriate variables for these factors.

Every embellishment of trading to the new or aspiring trader is money in the pocket of vendors and institutions and must be exposed.

 

[barjon]

Commissions and taxes are essential for professional or aspiring professional traders to factor in, not optional for those in countries where it is mandatory. I am not familiar with spread betting but I have read that slippage and wide spreads are common, barjon please come up with an equation with appropriate variables for these factors.

Every embellishment of trading to the new or aspiring trader is money in the pocket of vendors and institutions and must be exposed.

Gt is talking (sensibly) about starting small at around £1 pp. he'll likely spread bet because minimum commission for cfd would be too onerous. Thus he won't have to bother much about commission since that is already catered for by the spread, nor tax. So long as he uses a reputable company in uk he won't suffer much of the dodgy practices - slippage etc - that were about in the past.

 

[petetrades]

Gt is talking (sensibly) about starting small at around £1 pp. he'll likely spread bet because minimum commission for cfd would be too onerous. Thus he won't have to bother much about commission since that is already catered for by the spread, nor tax. So long as he uses a reputable company in uk he won't suffer much of the dodgy practices - slippage etc - that were about in the past.

Do the reputable UK spreadbetting firms all have insurance on the customer's funds in case their business goes bankrupt?

 

[barjon]

Do the reputable UK spreadbetting firms all have insurance on the customer's funds in case their business goes bankrupt?

Client funds are subject to FCA regulations and held separate from other funds. Thus client funds are protected and if there's any problem clients are further protected by the FCA compensation scheme, up to £50,000 I think it is.

 

[f2calv]

he'll likely spread bet because minimum commission for cfd would be too onerous.

Using the (amazing lol) IG as my "broker" example, trading CFDs on forex/indicies/commodities is commission-wise identical to spreadbetting as you only pay the spread - which is the same for either.

The difference comes when opening a CFD position on individual equities where you'll have a £10 opening AND closing fee into the mix... maybe the spread is also widened for spreadbets on equities also?

Other brokers obviously may/will charge differently...

 

[barjon]

Using the (amazing lol) IG as my "broker" example, trading CFDs on forex/indicies/commodities is commission-wise identical to spreadbetting as you only pay the spread - which is the same for either.

The difference comes when opening a CFD position on individual equities where you'll have a £10 opening AND closing fee into the mix... maybe the spread is also widened for spreadbets on equities also?

Other brokers obviously may/will charge differently...

Yes, Equities are the game in town for me and as the spreads have got much tighter by the SB companies they are more competitive with CFD and much cheaper unless you are trading considerable size.

 

[Signalcalc]

Risk managerment

On UK equities who has the least cost and the widest choice for SpreadBetting? FXCM appears to have a 10 pip spread which is ridiculous!

 

[petetrades]

On UK equities who has the least cost and the widest choice for SpreadBetting? FXCM appears to have a 10 pip spread which is ridiculous!

Those wide spreads are the norm from what I've read. Any description of risk management without factoring in these spreads truly is terribly awful in describing the reality of risk management and trading execution when spread betting.

 

[barjon]

On UK equities who has the least cost and the widest choice for SpreadBetting? FXCM appears to have a 10 pip spread which is ridiculous!

GKFX, ETX, Finspreads to name just a few.

When you say a 10 pip spread .....on what? You'll get less than a point for popular shares around the 100/200p price and they are pretty close to the market nowadays. Don't know about fxcm. The worst is the widened spread at the open which happens in the market, of course, but often exaggerated in SB.

 

[barjon]

Those wide spreads are the norm from what I've read. Any description of risk management without factoring in these spreads truly is terribly awful in describing the reality of risk management and trading execution when spread betting.

Well, as I said, you read wrong. Don't start criticising something you say you know nothing about.

 

[petetrades]

Well, as I said, you read wrong. Don't start criticising something you say you know nothing about.

Don't put words in my mouth! Lack of familiarity does not equate to me saying "I know nothing about spreadbetting.". YOUR initial description was INACCURATE and did a DISSERVICE to traders, end of discussion.

"Jones explains: "A stop-loss manages the risk on the downside. We don't charge for these. If the price falls dramatically overnight and opens below the stop-loss price, it will close at this price. A guaranteed stop-loss, which is paid for through a wider spread, closes at the price you set whatever happens.""

"There are different types of bet, most commonly daily and quarterly. You don't have to hold them until the end of the period, but the spread will increase with the time frame to reflect the additional broker costs.

"If you decide to hold a bet open past its expiry date, you can roll it over, although there will be additional costs involved that will be factored into the spread."

http://www.moneywise.co.uk/investing/stocks-shares/pros-and-cons-spreadbetting

 

[Signalcalc]

GKFX, ETX, Finspreads to name just a few.

When you say a 10 pip spread .....on what? You'll get less than a point for popular shares around the 100/200p price and they are pretty close to the market nowadays. Don't know about fxcm. The worst is the widened spread at the open which happens in the market, of course, but often exaggerated in SB.

I'll look into those thanks. Last time I looked FXCM had a fixed 10 pip spread on all the equities they carry which is of a limited range anyway.

 

[barjon]

Commissions and taxes are essential for professional or aspiring professional traders to factor in, not optional for those in countries where it is mandatory. I am not familiar with spread betting but I have read that slippage and wide spreads are common, barjon please come up with an equation with appropriate variables for these factors.

Every embellishment of trading to the new or aspiring trader is money in the pocket of vendors and institutions and must be exposed.

You didn't say this then ? You know that bit where you say you are not familiar with spreadbetting.

You really are the most objectionable person I have ever come across in all my years on T2W. So when you say "end of discussion" you're dead right - you're not worth the trouble.

 

[petetrades]

You didn't say this then ? You know that bit where you say you are not familiar with spreadbetting.

You really are the most objectionable person I have ever come across in all my years on T2W. So when you say "end of discussion" you're dead right - you're not worth the trouble.

Lacking familiarity does not equate to utter ignorance.

 

[Signalcalc]

Risk managerment

Those wide spreads are the norm from what I've read. Any description of risk management without factoring in these spreads truly is terribly awful in describing the reality of risk management and trading execution when spread betting.

I don't have lots of experience with equity spreads in SB, but in forex they vary widely at times of day and for different instruments and between brokers so costs vary considerably depending on the strategy employed.

New traders should take this into account and be informed so that costs can be factored, it could indeed turn a profitable strategy that has been tested successfully, unprofitable when traded live, this would especially apply in the case of mean reversion strategies that aim to make profits from smaller movements rather than trend following strategies that aim to make profits from larger moves where spread can become less of a factor.

Spreads are also more important in system trading than in discretionary trading:

Spreads are a big factor in risk management that most people seem to ignore for some reason. If you have a 20 pip stop and there is a 4 pip (variable) spread then really the stop and take profit levels should ideally be + and - 4 pips respectively, otherwise the tested strategy rules may not be followed correctly.

Time of day is another large consideration, I've seen strategies that trade at EOD 10pm GMT tested profitably, but then fail to meet tested expectations because liquidity disappears from Forex at exactly 10pm every single day and spreads widen massively, rendering those strategies pretty unworkable really.

 

[barjon]

Yes, where there is that sort of variation it's got to be an important factor. Very difficult to do it with any precision though if the widening is sporadic. Does it reflect what is happening in the various forex markets, or is it just the SB companies?

I've never traded forex, too fast and furious for me, particularly after reading the Day in the Life of articles by gammajammer. No wonder not many make money at it.