Interesting article explaining how to use leverage and calculate position size

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Adriaan Admin

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Jan 30, 2018
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www.bitcoinforbeginners.io
#1
This article explains very well how to properly calculate position size in your trading and how to properly use leverage and margin within a sound risk management strategy. It also gives the insight how stoplosses play an important part in this context. The art of defining your stoploss is however a totaly separate matter, which you have to master before establishing position size.

The article uses a 2 or 3% risk amount in the calculations. Determining risk amount percentage is also a separate matter and depent a partly on the type of trading (strategy). For most active trading the risk amount would usualy be 1-2% though.

For easy reference i will share the basic calculation of position size:

" Position Size (in $) = Risk Amount (in $)/Distance to Stop Loss (percentage expressed in decimals = percentage / 100)"

Risk amount = 1-3% of total available trading capital (example if capital is $1,000: 2% x 1000 = $20)

The article has trading on bitmex in mind, calculating position size on spot exchanges is slightly different.

Position size in units of the asset = risk amount (in $) / distance to stop loss (in $)

Read the article here
 
Dec 13, 2018
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#2
How interesting, it's very complete. I always like to think and analyze the strategies, the big problem is that I have some doubts that maybe I will solve little by little, even so I find the explanation of these calculations of strategies very useful.
 

Adriaan Admin

Administrator
Staff member
Jan 30, 2018
225
39
28
www.bitcoinforbeginners.io
#3
How interesting, it's very complete. I always like to think and analyze the strategies, the big problem is that I have some doubts that maybe I will solve little by little, even so I find the explanation of these calculations of strategies very useful.
Thank you! It is part of money and risk management within trading, and probably one of the most important aspects to master in order not to blow up your trading capital.