There is no doubt that every trader dream of making a winning trade and multiplying their profit. But making a huge profit from forex trading or other investment options is not as easy as it sounds. If you are investing in forex, you need to remember that currently, it is the largest financial market with more than 9.6 million people across the globe, making it a highly competitive market.
Today there are many international brokers like RoboForex fx broker that offer various tools and instruments to provide the best trading conditions for its users that will help them make successful trades. Even though there are various services to help you make the best move, most successful traders say that one of the most important factors that determine the equity in your account will depend on the size of the position that you take on your trade. Position sizing has the power to improve your returns faster than any other forex strategy. So, what is this position sizing?
What is position sizing?
Position sizing is determining the exact amount of units needed to buy or sell a particular instrument. In other words, it is the dollar amount that a trader is going to use to start a new trade. Using position sizing, traders can determine how much security they can buy or sell to reduce the possibility of any risk and maximize profit. Even though this sounds simple, it is very essential to succeed in any trading as it will help a trader to understand how much risk they are going to take and its impact on their account. So, traders need to keep track of their trading positions and ensure that everything is fine.
Now, let us look at some of the most popular position-sizing strategies used by expert traders.
Popular Position Sizing Strategies
By using these simple position sizing strategies you will be able to track trading positions and reduce or mitigate risks.
Fixed dollar value
One of the simplest and most effective ways to incorporate position sizing into your trading is by keeping the dollar value fixed. Implementing this strategy can be extremely beneficial if you are new to the trade or if your capital is limited. By keeping the dollar value fixed, you will be able to reduce the risk that you are taking per trade. This is also the best way to protect your capital even if you lose out in the first couple of trades.
Fixed lot sizes
Another important position sizing strategy that can easily be incorporated is to keep your lot fixed. It means that regardless of what position you are taking, you need to trade only in this fixed lot size. Every trading size will have some risk associated with it. So, remember to choose the trading size that has risks that are easily manageable and should be able to assimilate into the trader’s account in case any risk occurs. Also based on the change in your portfolio, you have to adjust the trading size accordingly.
Fixed risk position sizing
One of the most common yet complicated risk position sizing techniques is fixed risk position sizing. In each trade that you are making, you will be risking a certain percentage of your overall capital. So, traders need to take a position after calculating the risk associated with it. While using this strategy, traders with larger positions can take more risks on each position compared to traders with smaller portfolios. If you do not use this technique in your trading, you may end up taking a bigger risk that is unmanageable, which can lead to losing your trading capital.
Contract size value
This is one of the most commonly used position sizing techniques by many traders to control their risks and also to get maximum exposure in the market. Based on your experience, you may trade small-size contracts first and later you can go for standard contact sizes as you become experienced.
So, use these position sizing techniques to reduce unwanted risks and improve your trade.