How "Pros" size their trades

Discussion in 'Risk Management' started by Yana, Mar 14, 2013.

  1. Yana



    You often hear people say allocate no more than 5%/2%/1% of risk capital per trade. But when you read through market wizard type interviews, you find guys recounting their rags-to-riches stories of how they made it through a few big trades. e.g. between Druckenmiller and Soros:
    "How big a position do you have?" he asked.
    "One billion dollars," I answered.
    "You call that a position?" he said dismissingly. He encouraged me to double my position. I did, and the trade went dramatically further in our favor.

    Now ET community already has many discussions on Soros so no need to focus just on him. What I'm curious about is why these guys who made it through huge size trades tell people they should be very prudent with capital per trade.

    Am I getting the wrong impression? Do the Pros size their trades like how people are suppose to or do they "go for the jugular" more often than they would like to admit?

    What do you think?
  2. you could have a large position but a tight stop.

    you could also be hedged - allocate 90% to trade and 10% to hedge.
  3. irniger


    Regarding hedge: How do you hedge a cash forex trade with 1:100 margin using 90% of the risk capital for the trade and 10% for the hedge?

    Thanks, Felix
  4. quantum aum is 30b
    say they use 4:1 margin
    a 1 billion position is less than 1% of buying power/ working capital.
    So indeed is not a very big position for them
  5. You have what you perceive to be "routine, grind-out trade" plays... and then there are some perceptions of "bigger opportunity".... and therefore bigger position seems warranted. It's an art when to go bigger... and of course should always use a stop in case your perception is wrong.
  6. For every Wizard who bet the farm and won, there are probably 1000 who bet the farm and blew up. It's called survivorship bias.
  7. southall


    For a retail trader it is possible to bet big when you start out.

    If you only got 50K you can take bigger risk because if you blow up or have a big drawdown you can refill your account via a day job.

    But if you got 500K or Millions then you dont want to blow up or risk big drawdowns. as its not so easy to replace that kind of money. It will take years and years to rebuild your account.
  8. I use kelly criterion to size trades for the most part.

    Size your trades commensurate with edge. The larger the edge, the larger the size.
  9. Best be careful.

    There is no "edge".... except for illegal front-running and illegal trading on inside information. Yeah, I know... lots of folks seek and believe they have an edge.... but they really don't.
  10. I can quote quantifiable edge for each trade I do. If there was no edge I wouldn't make any money.
    #10     Mar 14, 2013