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Season 1Episode 162:22

Decide how much you could lose before you decide how much to buy

In this lesson Understand that account balance, position size and planned risk are three different numbers.

Your next step

Fees, minimum orders and withdrawal routes differ between exchanges. Compare them side by side before you choose.

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Key takeaways

  1. Account balance, position size and planned risk are three different numbers.

  2. Decide your exit first, then size the position.

  3. With a 5% stop and a 20 risk budget, the position is about 400.

Quick check

Entry 50,000, planned exit 47,500, and you accept losing 20. About how big is the position?

Try it yourself

Given an entry, a stop distance and a teaching risk budget, work out the virtual position size.

Show the answer

400 USDT notional spot amount; 0.008 BTC; fees and execution differences are extra.

Transcript

  1. Sam

    I have 1,000 and only want to lose 20. So I just put it all in?

  2. Nexubo

    What's in your account, how much you buy in this trade, and the most you plan to lose are three different things. Decide your exit first. Then you can size the position.

  3. Narrator

    One practice sum. Entry at 50,000, planned exit at 47,500. That's 5% away. If you plan to take a 20 price loss, ignoring costs, the position is about 400.

  4. Sam

    So 'lose at most 20' doesn't mean 'buy only 20'?

  5. Nexubo

    Right. Here a 400 position falling 5% is the 20. These are teaching numbers only.

  6. Narrator

    Real markets have slippage, gaps, fees and failed orders, so planned risk is not a guaranteed maximum loss. Never borrow money for this course, and never practise with money you need to live on.

  7. Sam

    Twenty.

  8. Nexubo

    Work out the worst you can accept first. Then ask whether you need this trade at all.

  9. Narrator

    You set a stop-loss. Does that mean you can only lose that amount? Next: the truth about stops.

  10. Narrator

    Understand first, then act.