what is your default lot size when trading relative to the amount of money you put down on any given trade? For example, many people put down 5 grand, what size do you use to trade, and how much room do you give it?
It depends on the account size, how many positions you're willing to have open simultaneously, and which instruments you trade. For example, if you put 5k into one trade on a 10k account, you would be risking a huge percentage of your account on a single bet. A common rule of thumb is to risk 1-2% of account equity on a single trade. So on that 5k trade, one might risk only $100-$200 before closing the position. If you trade futures, particularly mini-sized Dow and S&P futures, a common method is to buy one contract per each $10,000-$15,000 of account equity. This means that although an ER2 contract might only require you to use $1688 for the margin deposit, you would only buy at most 10 contracts for a $100K account. - Paccc
Paccc, would you agree that the price of the equity also matters? You have 5k and what to buy 100 shares of a $ 50.00 stock, your account is maxed out 100% in just ONE stock.. not good! Even though you might have another 5k margin, others will advise not to trade with margin if possible or very little. -- In my experience, if you cant afford at least 100 shares, dont bother with that stock, or what for it to come down. -- If you have 5k, and your looking at a stock like RIMM thats 80.00, you'll only be able to buy 62 shares. If you were with my broker, you'd have to have a move of at least 25 cents to break even at a small profit of 1.50. -- I trade with all my $$ because I have up to three or four positions...both longs and shorts. -- Most day traders I know trade in 1000 shares lots minimum.
hey thanks for the link, as everyone in my firm practices, we vary our position size according to each situation (or in this case as in the article described- volitility and risk) right as I expected. It makes sense to trade small when the market is not giving many opportunities and not miss any of the good moves when the market presents them.