What's the difference between: 12.Margin Target 13.Leverage Target 14.Percentage of equity To me Margin Target, Leverage Target, or Percentage of equity are the same. If for ES my margin target is $1,000, then that corresponds with a certain leverage. If I take that specific leverage, then it will correspond with a margin target of $1,000. And a margin target of $1,000 corresponds with a certain percentage of equity.
12.Margin Target Margin target position sizing sets the size of each position so that the chosen percentage of account equity will be allocated to margin. For example, if you choose a margin target of 30%, then 30% of the account equity will be allocated to margin. For futures trading, the trading margin is specified on a per-contract basis. The margin requirement for trading one contract of the E-mini S&P futures might be $4,000, for example. For an account equity value of $30,000, a 30% margin target would mean that 0.3 x 30,000 or $9,000 would be allocated to margin. With a margin requirement of $4,000, the number of contracts would be 9000/4000 or 2 contracts (rounded down from 2.25). In other words, a position size of two contracts requires a margin amount ($8,000) that is as close to 30% of equity as possible without exceeding that target. For stock trading, the margin requirement is calculated as a percentage of the purchase price of the position. If the margin requirement is 100% (no leverage), you need to pay the full amount of the trade. For example, a stock trade that enters at a price of $23 would require $23 per share. However, a typical retail margin account in the US can be margined up to 50%, 48 which mean that the margin requirement for a $23 stock would be only $11.5 per share. If the margin target is, say, 40%, and the account equity is $25,000, then $10,000 should be allocated to margin (i.e., 0.4 x 25000). For a $23 stock and a margin requirement of 50%, you would trade 10000/11.5 or 869 shares. In other words, 869 shares would require margin of about $10,000, which is 40% of the account equity of $25,000. 13.Leverage Target The leverage target position sizing method sets the position size so that the leverage of the resulting position matches the selected target. Leverage is defined as the ratio of the value of the position to the account equity. For example, if 1000 shares of a $30 stock are purchased with a $25,000 account, the leverage would be $30,000/$25,000 or 1.2. Leverages greater than 1.0 imply margin percentages less than 100%. A margin percentage of 50%, for example, is equivalent to a leverage of 2 (“2 to 1” or “2:1”). 14.Percent of Equity This method is intended primarily for stocks. The number of shares is chosen so that the value of the position is equal to the selected percentage of account equity. For example, if the percent of equity is 40%, the position size will have a value equal to 40% of the account equity. If the account equity is $30,000, the position would have a value of 0.4 x 30000 or $12,000. If the share price is $25, the position size would be 12000/25 or 480 shares. In other words, a position size of 480 shares at $25 per share has a value of $12,000, which is 40% of the equity value of $30,000. As with the leverage target method, this method requires the entry price and, for futures, the point value.
Doesn't position sizing go hand in hand with risk management, eg. stop loss? It ain't how much equity (or margin) you can trade, but how much you can possibly lose.
This is also a question how you define Money Management as position sizing and Risk Management as having different kind of Stoplosses. But here it is only about Position Sizing.
For swing trading stocks. I use a % of equity, but not as shown above. I risk a small percent of equity depending on stop placement. Account size is 100K Risk 1% = 1K Stop is $5 below entry price. Position size is 1k/$5 or 200 shares.
You're one of those classical, textbook, conservative, traders....who follows all the golden, cliche, rules of trading. Risking 1% per trade. Imagine if you risked 100% per trade, and had a reasonably high accuracy and understanding level....trade after trade. You would be so much better more, comfortably, off. You could say you practically have won the lottery. 1% is very tiny and very conservative per trade. A trader must not be very confident and prepared in themselves. You should refine your understanding, approach and process to the point you feel like risking much more for a greater, more serious, gain.
My guess listening to you so far is that I'm doing much better than you. Why would I risk 100%, that's a coin flip. You understand woulda, coulda, shoulda and trade really well off yesterdays charts. But I haven't seen anything that convinces me that you have any idea at all what you are talking about.
I rest my case, Trading is like politics and religion....it's nearly impossible to change and convert someone's perspective once they have been conditioned and brainwashed elsewhere already. Similarly, to all the Al Brooks fanatics on this site. They will defend that bogus trading teacher because they have been sold and bought already. Even if I showed them how to literally make a million in the market....they will still side with Al Brooks, even though they are losing money using his logic and teachings. Talk about the blind leading the blind, the dumb leading the dumb -- it's like the KKK clan....if you watch documentaries on it....you will see how dumb and ignorant they all sound and look like. Back country, inbred, hillbillies....literally, with barely a High School education.
This is a terrible idea for futures. It is the idea these "prop futures" firms with combines pray their client will utilize, so they have to constantly pay reset fees.
I agree 100%. You are the perfect example of that. Now that you have rested your case, and I agree that you are not going to change anyones thinking, what are the chances you'll just STFU!! My prediction of the future is that it's not going to happen.