How Should Leverage Influence Trade Size?
April 29, 2008
If you're a first time visitor, I encourage you to subscribe to the RSS feed so you don't miss anything. Thanks for visiting!
John Forman - The Essentials of Trading author
The question “How should the size of your leverage influence the size of your trades?” was recently asked.
Leverage and margin is something that can really get the head of a new trader spinning. The easiest thing to do is to take it out of the equation in your position size decision-making process other than to determine how large a trade you can put on. Maximum trade size available is really the only thing leverage means to you. Aside from that, it doesn’t matter at all.
When you decide on trade size it should come completely from your risk plan. You should know what your permissible risk is. You have an idea of what your risk is on a given trade. You adjust your trade size to make the two match. If the trade risk exceeds your guidelines, you don’t take the trade. If it’s not, you take the size position your parameters allow, up to the maximum size your leverage will permit.
That’s it. Real simple.
Here are some other posts which might interest you:
Comments
Got something to say?