How to manage risk and money in highly leveraged instruments

Discussion in 'Risk & Money Management' started by mutualguru, Jan 11, 2016.

  1. mutualguru

    mutualguru Active Member

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    Trading derivatives like future have high risk and reward . Because futures are highly leveraged instruments we have to take extra precautionary measures comparing to an equity. In regarding this what kind of risk and money management we should follow when we are trading highly leveraged instruments especially futures (eg stop loss, number of scrips in portfolio etc).


    Any kind of idea is welcomed (especially futures)
     
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  2. aarav131

    aarav131 New Member

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    While futures can be used to effectively hedge other investment positions, they can also be used for speculation. Doing so carries the potential for large rewards due to leverage but also carries commensurately outsized risks. Some pointers to keep in mind while trading in futures:

    1) Spread your risk over a range of different markets, for example, stock index, currency, and several commodities like grain, livestock, energy, metals, industrials, softs.

    2) Always use Stop Loss Orders to protect capital whenever you make a trade, and move them to protect profits.

    3) Never let a profit run into a loss. As soon as a trade becomes profitable, move your stop loss to lock in profits.

    4) "When in doubt, get out." If you are unsure of the market position it is safest to exit with a guaranteed profit or small loss.

    5) Create a surplus account. When you have made some profits place them aside to use only in an emergency.
     
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  3. vijkris

    vijkris Well-Known Member

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    hi,
    max risk of 2% of capital ,per trade has to be followed under any circumstances.
    eg. for 1 lakh capital, 2%= 2000rs.
    so in nifty if u get a setup where sl is less than 25, then u can take trade, otherwise not.
    though for intraday margin req is less than 20 k, u must have minimum 1 lakh capital to enter futures for 1 lot of nifty..
    conservatively, more than 2 lakhs is recommended to account for drawdowns as well.

    if in a day 3 sl hit, i.e 6% loss on capital means u have to quit for the day.

    hope it helps.:thumb:
     
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  4. LoneWolf

    LoneWolf Well-Known Member

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    Hello Kris.

    I wanted to post my question in a separate thread, but since this topic is already started here, so posting it here. I am using max 1% risk on every trade and I am fine with it. My question for a week and a month where should one draw a line to stop. Like you told if we hit 3 loss or loose 6% in a single day then we stop taking any further intraday trades on that day. What happens if next day too we hit the daily risk of 6% and again the day after? What risk amount should one watch for weekly and monthly horizon..

    I know MM is more a personal choice and risk appetite. But asking it in genera sense for what should be a standard MM aproach.

    Thank you
     
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  5. palak.v615

    palak.v615 New Member

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    Hi,

    When talking about risk management playing with the Stop loss is best ever mantra .it is more digest-able than a big loss.Diversify your portfolio. Use at
    least 1% risk of your trades.Try to square off your trade as soon it becomes
    profitable.Hedging can be also useful.

    Keep Trading !! :)
     
  6. vijkris

    vijkris Well-Known Member

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    hi, sorry for late reply..:eek:

    for details of risk mgmt., pls click - http://www.traderji.com/trading-dia...ew-way-pivot-trading-vwap-41.html#post1131836
     
    Last edited: Mar 3, 2016

  7. vijkris

    vijkris Well-Known Member

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    I m sorry for disagreeing with u regarding the line marked in bold.
    I think we should NOT square off trade as soon as it becomes profitable.
    if we sq off early then we cannot encash big profits which a trending market gives.
    We should always trail it if entered in a trend.

    Keep Trading !! :)
     
    Last edited: Mar 3, 2016
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  8. mutualguru

    mutualguru Active Member

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    I agree with vijkris we should not square off after trading become profitable. One of the reason I know is most of the strategies has a very low winning percentage(20-30%). If you square off your position immediately then there is a big chance that instead of getting profitable you will lose money(also include brokerges,STT etc)
     
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