Perhaps, enough pointers have been mentioned by now. No free lunch, of course! Here is my last quote: "Premium expansion for at-the-money options can easily reach $5,000 per option in high implied volatility situations, and the margin required may increase exponentially." Good bye guys! Signing off now.
This highlights the difference between investing and trading. An investor basically relies on the ability to identify long-term trends. It is assumed that there are always identifiable trends in mutiple intruments. So, the question is reduced to how to allocate capital between these instruments (some of which may calendar spreads or iron condors etc, not necessarily a simple security though most people think of investment as going long equity shares). A prospective investmnet instrument is in one of the 4 states (from the subjective view of an investor): 1) there is no identifiable trend; 2) there is a potential for a trend starting; 3) there is an established trend; 4) there may still be some styrength left in the trend but we missed the train. Because it's note necessary to enter a position in stage 2) and stage 3) is long in trending markets, it is possible to re-allocate capital between instruments over time... Allocation of capital between trending instruments is a well-explored topic and there is lots of books on it. Some deeply mathematical. The risk here is viewed as the volatility of the investment portfolio, whihc in turn is dependent on how correlated the components of the portfolio are. If the instruments are perfectly correlated, it is like investing in a single intrument. On the other hand, if they are uncorrelated, the volatility of teh portfolio is greatly reduced by investing in multiple instruments. So, if substantial part of the capital is not allocated, an investor thinks the money isn't working and can be deployed elsewhere. To investor this means the investment manager has run out of investment ideas. In trading, on the other hand, the edge is in timing rather than selecting the right instrument (stock-picking). Lots of traders trade just one instrument (like S&P 500 e-minis). It is common to have no positions open for some time (in fact, daytraders keep no positions overnight). A question of allocating risk only appears when a trader trades a large number of different instruments or a number of different set-ups in the same instrument. In fact, larger hedge funds and investment banks, which have multiple traders independently trading multiple strategies, often use techniques similar to those for large equity portfolios (as described above) to quantify and allocate risk. In futures, 50% actually sounds like way too much leverage. As a benchmark, if 100% of the account was used for a margin, after one lossing trade, however small the loss, the capital would not be sufficient to open another trade (in the same size). So, allocations close to 100% which we see in long-only unleveraged funds, are totally meaningless when applied to futures margins.
I think most responses were relevant, it's due to your trade, is it a day trade? if so, how good is it? as per your setups, is it an investment? how long you holding it? some great intraday setups I will push it huge b/c of probability basically you have lots to study
Leverage = assets/equity In the 50% of account in margin case, this translates to L = 1/(2 x margin), where "margin" is a fraction of face value. With 1:50 leveraged forex for example, margin is 2% or 0.02 and L = 25 You see it does not depend on face value. If 100% of the account is used then L = 1/margin Fairly good read: http://www.priceactionlab.com/Literature/LeverageMarginEquity.pdf
OddTrader - my point is that question is too general and there is no answer that fits all. For example if you say 10% risk. If equity is $3000 10% is $300. If equity is $300 000 10% is $30 000. Now risking $300 and $30 000 on a single trade is not the same thing even if % is same. You need to be more specific mate.
since seems you are a very rare and serious truth finder on this et board, I have to confess the truth is that i am merely and still a junior learner of my esteemed et masters (of what's the point of writing that): jack hershey and hypo (i.e. arthur deco, etc.). http://www.elitetrader.com/vb/showthread.php?threadid=210990 http://www.elitetrader.com/vb/showthread.php?s=&threadid=203194&highlight=jack enjoy your quality time on et, mate!
Of course we do - for an un-leveraged asset, it's 1%, same as the max allowable loss. What else could it possibly be? For leveraged, it's max-loss/leverage. Are you sure you are asking what you think you're asking?