Thank you AW10 for your valuable inputs. As far as position sizing is concerned is 1 Lot of Nifty good enuf for say 500 k of capital. I have learnt great lessons by over leveraging during the last series.
It is not upto me to say whether it is 1lot is good enough or not ? It all depends on your risk appetite and your financial goals.
Trade size is determined in following way. Everything revolves around risk.. because that's what u can consider. Basic idea is that the trader takes calculated risk and stays in business for long enough.
for example lets take Sample acct size = 100000 Rs.
1) What is the amount that you want to risk on each trade (say 2% of ur acct size) = 2000 rs.
2) What is your entry point and stop price difference.. that is yr initial risk (say entry 4525, stop at 4500 so 25 points risk). So the risk on 1 NF lot = 25*50 = 750 Rs.,
So one really wants to follow the rule then one can buy 2 lot within your risk limit. With 3 contract, it goes beyond your risk limit so better to avoid it.
If you look at above calculation, then the leverage given by broker is not constraint here. There may give u huge limit, but if the trade goes against you then they will simply close the account and
u have pay the real cash to settle it.
So it is always the real cash account size that comes in picture here.
Then what is the use of leverage - it helps when u have a great trade where ur stop is say 5 points away i.e. risk = 5*50 = 250 rs per contract. So you can buy 8 contracts and still be within your 2% limit .
If there is not enough leverage then probably you many not be able to take 8 contracts.
Hope above explanation is clear enough and helps you.
Happy Trading
