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how many contracts?
Trading CDF for s and p 500 right now, since my account size is not there for the e mini 500. when I take a trade, I do not know how many contracts to trade. If the stop is far, or if the stop is close, should I put the same number of contracts? Or should I base it off of a percentage risk of my entire account? Thank you! Great program by the way.
Any tips? Thanks everyone.
You should be careful not to lose sight of your trading account size and suggest you not risk more than 2% on any one trade. You could risk 1% if wanting a conservative risk, and perhaps 3% for a more aggressive risk. Then if you lose, as we all must, limit your day's trading to a maximum of say 6% of your account. This avoids running the real risk of wanting to revenge trade and get your losses back. Such a strategy often results in even more of a loss! [Been there, done that!]
So whatever your stop loss is, you still need to keep the 2% max so use as many contracts that will 'fit' this. Be sure to use a sensible stop; though, not too tight, or your account will die from a thousand paper cuts as they say. Painful.
Thanks for the response Richard. I have been reading a lot about stop losses. So I should calculate the percent of my account being risked, and how many lots I trade based on the distance from my fill price to my stop loss? A hypothetical situation would be using 100% of my whole account to open up a very large trade, but my stop loss is placed in a place where my loss will only be X% of my entire account. Should this stay consistent for every trade? If a stop is very far away, or very close away, should I still place a X% stop loss risk? Thank you for your time Richard.
Yes, always keep in mind what you max risk/loss is and construct your trade around it. So a wide stop will limit your size, and a tight stop can give you potential to risk more contracts.
The 2% risk for your account may not actually be the money you have available for trading. You may have more cash stashed elsewhere, in other trader accounts or savings/whatever, that you deem usable for trading. So for any broker connection you will be limited by the margin and could well be more aggressive risking more. But do not get carried away as the general rule is still that you should be comfortable with any losses and trading funds should be money you can afford to lose! Painful if you do lose it all though.