CFD Position Sizing with Stop-Loss Distance and Account Risk
Summary
The article explains a position-sizing method for contracts for difference: first choose the amount of account capital to risk, then set a stop-loss, and divide the risk amount by the loss per unit at that stop. Its worked gold example applies a 2% account risk allowance and a specified entry-to-stop distance to derive units and lots. The sequence is the central lesson: determine the stop level from the trade setup before deciding how many units to open.
It argues that leverage affects the margin needed to open a position, while position size and stop distance determine the planned loss if the stop executes. It also recommends placing hard stops and reducing the risk fraction after a losing streak. The method is a basic planning calculation, not a guarantee of a maximum realized loss: gaps, slippage, fees, contract specifications, and stop execution can change outcomes. The article does not discuss how to choose a stop, nor does it compare the rule’s performance across markets or strategies.
Key ideas
- Planned position size is calculated by dividing the tolerable cash risk by the loss per unit at the stop.
- A trader should define the stop distance before calculating the number of units or lots.
- Leverage changes margin requirements, while position size and stop distance set the planned loss.
- The article recommends using hard stop orders and lowering risk after a series of losses.
- Gaps, execution slippage, fees, and contract specifications can make the realized loss differ from the calculation.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.