One subject
Position sizing
21 lessons, 32 glossary terms and 3 market guides cover this across the academy. Each one links to its own page, and nothing is repeated here.
Trading involves risk. You could lose more than your deposit.
The curriculum
21 lessons cover this.
In curriculum order, which is the order you would meet them.
- What a lot isModule 02The trade ticket6 min
- How to calculate pip valueModule 02The trade ticket8 min
- Contract size across the asset classesModule 02The trade ticket7 min
- What margin isModule 03Margin and account mechanics9 min
- What used margin isModule 03Margin and account mechanics6 min
- What free margin isModule 03Margin and account mechanics5 min
- Offered leverage and effective leverageModule 03Margin and account mechanics8 min
- How a margin requirement is calculatedModule 03Margin and account mechanics8 min
- Why a loss is harder to recover than it was to makeModule 03Margin and account mechanics8 min
- Worked scenario: a single position reaches close outModule 03Margin and account mechanics10 min
- Worked scenario: two positions and a margin callModule 03Margin and account mechanics9 min
- How margin differs across the asset classesModule 03Margin and account mechanics7 min
- How cost moves your break evenModule 04What a trade actually costs7 min
- What risk management actually isModule 09Risk, plan and practice7 min
- What risk per trade describesModule 09Risk, plan and practice10 min
- How position size follows from stop distanceModule 09Risk, plan and practice10 min
- Volatility adjusted position sizingModule 09Risk, plan and practice8 min
- What portfolio heat isModule 09Risk, plan and practice7 min
- Where a stop sits on the chartModule 09Risk, plan and practice13 min
- How scaling out of a position worksModule 09Risk, plan and practice8 min
- Adding to a losing position, as a risk topicModule 09Risk, plan and practice8 min
The glossary
32 terms belong here.
Alphabetical, each defined in one sentence on its own page.
- Average entry priceAverage entry price is the size weighted mean of the prices at which the parts of one position were opened, and it moves every time a further tranche is added at a different price.
- Average true range (ATR)A measure of how far an instrument typically travels in one period, averaging the true range of recent bars so that gaps between them are counted rather than ignored.
- Averaging downAveraging down is adding to a position that has already moved against its opening price, which lowers the average entry of a long position and increases the total exposure in the same action.
- CompoundingCompounding is the effect of applying a percentage change to a base that has already been changed, so a sequence of gains and losses does not net out to the sum of its percentages.
- Contract sizeContract size is the quantity of the underlying that one contract covers, such as the units of base currency in a standard lot, or the ounces in one gold contract.
- Counter currencyThe counter currency is the second currency written in a pair, the one the rate counts out, and the currency any result on that pair arrives in before conversion.
- Currency pairA currency pair prices one currency in terms of another, base first and counter second, the rate stating how many units of the counter one unit of the base costs.
- DiversificationSpreading exposure across positions whose results do not move together, so that the variability of the whole is lower than the average variability of its parts.
- DrawdownThe fall from a peak in an account's value to the lowest point reached before a new peak is set, usually stated as a percentage of that peak.
- ExposureExposure is the money value of the market a position covers, measured on the full contract value rather than on the sum posted as margin against it.
- Kelly criterionThe Kelly criterion is a formula that returns the fraction of capital to stake on a repeated bet, given a win probability and a fixed reward to risk ratio.
- Loss limitA loss limit is a threshold fixed in advance, stated as an amount or as a percentage of the account, at which a trading plan calls for dealing to stop for a defined period.
- LotA lot is the standard unit in which trading volume is expressed, so an order is sized in lots and the exposure that produces depends entirely on the instrument's contract size.
- Lot sizeLot size names two different things in common usage: the volume entered on an order ticket, counted in lots, and the quantity of the underlying that one lot represents.
- Margin requirementA margin requirement is the percentage of a contract's full value that has to be posted and held while the contract is open, set per instrument by the counterparty.
- Market riskMarket risk is the exposure to loss from prices moving, the one risk that remains after credit, liquidity and operational risks have been separated out.
- MartingaleA martingale is a staking scheme in which the size is doubled after every loss so that one win recovers the whole sequence, and it requires unlimited capital and no ceiling on the stake to work.
- Money managementMoney management is the set of conventions traders use to decide position size and how much of an account is exposed at once, separate from any view about direction.
- Net positionA net position is what remains in one instrument once long and short size have been offset against each other, stated as a single direction and a single quantity.
- Notional valueNotional value is the full value of a contract, its price multiplied by the units it covers, and profit and loss are calculated on that figure rather than on the money posted against it.
- PipA pip is the conventional increment a currency pair is quoted in, the fourth decimal place for most pairs and the second for pairs quoted against the yen.
- Pip valuePip value is what one pip of movement is worth in money on a given position, found by multiplying the size of one pip by the number of units the position covers.
- Portfolio heatPortfolio heat totals the amount at risk across every open position at once, measured as what each would lose at its own stop and expressed as a share of account equity.
- Position sizingPosition sizing decides how many units a position covers, most often by working back from the distance to its protective level and the amount of equity being put at risk.
- PyramidingPyramiding adds to a position that is already showing a gain, so the holding grows in stages while its average entry price moves towards the current market price.
- Quote currencyThe quote currency is the second currency in a pair, the one a rate is counted in, so pip value and any result on the pair are denominated in it.
- Reward-to-risk ratioA reward-to-risk ratio compares the distance from an entry price to a target with the distance from that entry to a protective level, stating the first as a multiple of the second.
- Risk managementRisk management is the set of arrangements that determine how much can be lost on one position and across an account, covering size, protective levels, exposure to related instruments and the capital committed in total.
- Standard lotA standard lot is the conventional full unit of dealing size, in foreign exchange one hundred thousand units of the base currency, from which mini, micro and nano lots are stated fractions.
- Stop distanceStop distance is the gap between the entry price and the level at which a position is set to close against itself, measured in the instrument's own increment rather than in money.
- Tick valueTick value is the money a position gains or loses when its price moves by one minimum increment, found by multiplying the tick size by the quantity the contract covers.
- Trade sizeTrade size is the quantity a position covers, entered as a volume in lots or units, and it is the figure that decides how much money each price movement is worth.
The market guides
3 guides answer a question about it.
Standalone reference answers, entered laterally rather than worked through.
- Contract sizes and lotsMechanicsWhere the number in the volume box comes from, and how contract size turns a price move into money.
- Pip, point and tickMechanicsThree units of price movement used as though they were one, and how each converts into money.
- Tick size and minimum incrementsMechanicsWhy prices move in fixed steps, who sets their size, and the three grids that decide what a venue takes.
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