Money management determines how much to risk on each
individual trade. This is a vital element of any trading system -
risk too much and the chances of going bust are too high, risk
too little and the reward for trading is too low.
The main methods for calculating trade size are:
Fixed Fractional
The number of contracts to trade is determined by a fixed
percentage of current equity. As only whole futures contracts can
be trade this, effectively, means that the trader uses 1 contract
per $x of equity. For example 1 contract per $10,000.
Fixed fractional, however, requires unequal achievement at
different contract levels. For 1 contract every $10,000 to move
from 1 contract to 2 requires a profit of $10,000 from 1
contract. To move from 10 contracts to 11 still requires $10,000
profit but from 10 contracts. So for smaller account sizes it
will take a long time for the money management to actually kick
in and for larger account sizes the number of contracts traded
will jump wildly around.
Using fixed fractional the number of contracts traded would be
calculated as equity/x, where x=dollars per contract ($10,000 in
the above example).
Contracts - Equity Required $
1 - 10,000
2 - 20,000
3 - 30,000
4 - 40,000
5 - 50,000
6 - 60,000
Fixed Ratio
Fixed ratio adds a variable to the fixed fractional
method.
Fixed ratio adds delta to the calculation. The delta is a
factor which is required to move to the next contract level. The
lower the delta the more aggressive the money management is.
The formula is:
equity required to trade previous contract size + (number of
contracts x delta) = Next level.
Eg starting with a base of $10,000 for 1 contract and a delta
of $5,000:
Contracts - Equity Required $
1 - 10,000
2 - 15,000
3 - 25,000
4 - 40,000
5 - 60,000
6 - 85,000
Comparing the above table to that for fixed fractional it can
be seen that at the lower account levels less equity is required
whereas as the account grows the number of contracts traded
becomes less aggressive.
Tim Wreford runs Online Futures
Trading, a website that provides information and resources
for traders. Tim also provides a free
day trading system, the results of which are updated daily on
the site.
Sri Lanka Rupee, Stocks Drop After Currency Trading Band Removed Bloomberg The central bank narrowed the currency's trading band against the dollar on Feb. 3 and Feb. 6 and today, prior to announcing its removal. The monetary authority raised benchmark interest rates for the first time since 2007 on Feb.
India Eases Currency Trading Limits for Some Banks Wall Street Journal By SUDEEP JAIN MUMBAI -- India's central bank has asked banks to approach it individually for relaxing some foreign currency trading limits and has already eased restrictions for some banks, a top official said Monday. "Some limits, based on their ...
iFOREX Adds Oil to its list of Tradable Commodities MarketWatch (press release) ROAD TOWN, Tortola, Feb 09, 2012 (BUSINESS WIRE) -- Leading currency trading company, iFOREX, has recently expanded its services, giving all Forex trading accounts direct access to oil CFDs. Targeting an audience that has little or no experience with ...
This January Azerbaijan's exchange currency trading totaled $82.5 million Azerbaijan Business Center Baku, Fineko/abc.az. The Baku Interbank Stock Exchange (BBVB) has renewed statistics of its operations. BBVB reports that in January 2012 the nine participating banks concluded 28 deals in 36 trading sessions in e-trading system (BEST).
FOCUS: Technology Buoys Retail Currency Trading, Reshapes Old Models Wall Street Journal By Eva Szalay Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Retail foreign-exchange trading is emerging as one of the biggest growth areas in the currencies space, and some of the trading firms that facilitate these flows are building up a whole new ...
Morgan Stanley Currency-Trading Head Stephen Mettler Leaves Bank BusinessWeek By Michael J. Moore Jan. 26 (Bloomberg) -- Stephen Mettler, who oversaw Morgan Stanley's interest rates and foreign-exchange trading businesses, has left the bank. Mettler, who joined the firm in 1997, retired, according to an internal memo obtained by ...
Bank of England and ECB Hold Steady, Indonesia Cuts CNBC.com [CNBC] ----------------------- MULTI CURRENCIES VS THE DOLLAR Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm and repeats on Saturdays at 7pm. Learn more: The essential vocabulary for currency trading is on Key Currency ...
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MORE RESOURCES updated Thu. February / 09 / 2012
