How much risk capital should one use in a single trade?

[J.Joseph]

Quote from 0008:

100%

many guys would want you to do so

Funny, but, OP, there is nothing in common between risk and capital used. I can put in 10,000 into a trade and risk $17 plus trading fees by establishing a sell point if the trade goes against me. I can also put in a 10,000 trade with no risk limit and be risking the whole amount.
The question you should ask is "When I get into a trade, at what point (a specific monetary number per share) do I know I'm wrong?"
If the entry to the point you know you're wrong is $1.00, then you should risk $1.00 per share. Once you have that, calculate how many dollars you are willing to risk over all (let's say 200 in this trade) and you buy that many shares.
If you don't have a system for determining the point at which you were just wrong about the trade, I would look for one before getting into trading.

 

[intervention]

In a single trade your risk should be limited to half percent. You will not face a big loss with this practice. Your profit will be a reward for your good trading it will be certainly low but is better than loosing a big amount in taking high risks.

 

[Ghost of Cutten]

Depends mainly on your win rate.

High win rate (70%+) - bet 2-4%
Medium win rate (50%) - bet 1-2%
Lower win rate (30%) - bet 0.5-1%
Lottery ticket trade (e.g. 20% win rate) - bet 0.25%

Do this and you will make good returns on your winners while keeping drawdowns and negative emotions within an acceptable range.

Ofc, occasionally I bet bigger than that if a great trade of the year candidate comes along. But I would put 10% as an absolute maximum ever to bet, and IMO 99% of traders should be much smaller. In fact, as someone pointed out earlier in the thread, most traders lose money so 0% is the correct size. But you have to lose to learn, so just stay as small as possible.

 

[OddTrader]

Quote from J.Joseph:

Funny, but, OP, there is nothing in common between risk and capital used. I can put in 10,000 into a trade and risk $17 plus trading fees by establishing a sell point if the trade goes against me. I can also put in a 10,000 trade with no risk limit and be risking the whole amount.
The question you should ask is "When I get into a trade, at what point (a specific monetary number per share) do I know I'm wrong?"
If the entry to the point you know you're wrong is $1.00, then you should risk $1.00 per share. Once you have that, calculate how many dollars you are willing to risk over all (let's say 200 in this trade) and you buy that many shares.
If you don't have a system for determining the point at which you were just wrong about the trade, I would look for one before getting into trading.

When holding overnight positions trading futures/options on say weekly basis, not only the timing of knowing a wrong trade happening would be unforeseeable/ unpredictable , but also the maximum risk could be uncontrollable until it's too late if not adequately hedged.

 

[syswizard]

Quote from OddTrader:

When holding overnight positions trading futures/options on say weekly basis, not only the timing of knowing a wrong trade happening would be unforeseeable/ unpredictable , but also the maximum risk could be uncontrollable until it's too late if not adequately hedged.

That's exactly right and why trading intraday became so popular: your stops are hit at your price with regularity.

 

[OddTrader]

I think this is closely relevant:
Calculating minimum capital
http://www.elitetrader.com/vb/showthread.php?s=&threadid=267941

 

[intervention]

Quote from syswizard:

That's exactly right and why trading intraday became so popular: your stops are hit at your price with regularity.

If your stops are being hit regularly in day trading then why day trading should be popular because we do not want to get loss again and again.

 

[bwolinsky]

Quote from Ghost of Cutten:

Depends mainly on your win rate.

High win rate (70%+) - bet 2-4%
Medium win rate (50%) - bet 1-2%
Lower win rate (30%) - bet 0.5-1%
Lottery ticket trade (e.g. 20% win rate) - bet 0.25%

Do this and you will make good returns on your winners while keeping drawdowns and negative emotions within an acceptable range.

Ofc, occasionally I bet bigger than that if a great trade of the year candidate comes along. But I would put 10% as an absolute maximum ever to bet, and IMO 99% of traders should be much smaller. In fact, as someone pointed out earlier in the thread, most traders lose money so 0% is the correct size. But you have to lose to learn, so just stay as small as possible.

This is probably the best answer here, folks.

I don't know anybody stupid enough to trade lottery systems.

0% is not an answer given through optimality as CAPM doesn't ever choose the rfr, in which case the 0.05% is pretty funny. It isn't zero, but isn't large either.

Noting trades in ETF's and futures to be a bit different, the equity position size percentage can be the entire account since there are plenty of other securities or underlying than 1 company as with a stock.

Use the efficient frontier from your returns and deviations and you'll fill your knapsack approximately correctly.

 

[Visaria]

Quote from Ghost of Cutten:

Depends mainly on your win rate.

High win rate (70%+) - bet 2-4%
Medium win rate (50%) - bet 1-2%
Lower win rate (30%) - bet 0.5-1%
Lottery ticket trade (e.g. 20% win rate) - bet 0.25%

Do this and you will make good returns on your winners while keeping drawdowns and negative emotions within an acceptable range.

Ofc, occasionally I bet bigger than that if a great trade of the year candidate comes along. But I would put 10% as an absolute maximum ever to bet, and IMO 99% of traders should be much smaller. In fact, as someone pointed out earlier in the thread, most traders lose money so 0% is the correct size. But you have to lose to learn, so just stay as small as possible.

if a great trade of the year candidate comes along, you should seriously look at max leverage using options.

 

[Visaria]

Bill has a $100,000 account. He's gonna risk 1% ($1000). Decides to go short 4 contracts of CL at exactly $100.00. He has his stop at $100.25.

News comes out that a nuclear explosion has occurred in the Ghawar Field in Saudi Arabia. Probable terrorist attack. CL immediately hits $125 (lets forget about limit moves for the time being). Bill's stop is filled at $125.00. Bill has just been wiped out.

Discuss.