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Futures Position Sizing: Kelly, Fixed Ratio, and Other Models

Article Quant Q&A · Author: dvegadvol
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Summary

The document surveys sources and methods for choosing position sizes in futures trading. It points to the Kelly criterion, which sizes exposure based on expected returns and risk, and notes that fractional Kelly uses a reduced fraction of the full Kelly allocation. The response suggests that Kelly is not limited to futures and questions how optimal f relates to it. It also recommends general references on money management and position sizing, including a guide cataloging multiple models and Ryan Jones's Fixed Ratio approach.

The discussion is a brief set of pointers rather than a worked comparison. It provides no formulas, performance evidence, contract-specific adjustments, or guidance on estimating the inputs required by Kelly or Fixed Ratio. The suggestions therefore identify avenues for further study, but do not establish which method is preferable or how to implement one under practical futures constraints such as margin, volatility, or drawdown limits.

Key ideas

  • The Kelly criterion is presented as a widely used framework for sizing investments and bets.
  • Fractional Kelly reduces the allocation implied by full Kelly.
  • The document questions whether optimal f is a simplified form of Kelly.
  • Fixed Ratio is identified as one position-sizing approach considered useful for futures.
  • The recommendations are references rather than a tested comparison of methods.

Tags

FuturesPosition sizingRisk management
Full text
# What position-sizing methods are used in futures trading?


# What position-sizing methods are used in futures trading?












Beyond optimal / partial f and a few other older methods, there's very little information out there for futures trading.

## Answer by Tal Fishman (score 7)

https://quant.stackexchange.com/a/1983

The Kelly criterion is a very popular bet-sizing method. Edward Thorp has written a great deal on this topic. You can try googling for more, or start with his review of the concept, or a recent paper, Medium Term Simulations of The Full Kelly and Fractional Kelly Investment Strategies. This is not specific to futures, but I'm not sure why you would need something specific to futures. I've never heard of optimal f, but at first blush it sounds a lot like a dumbed-down Kelly criterion.

## Answer by Joshua Ulrich (score 4)

https://quant.stackexchange.com/a/1984

Money Management Strategies for Futures Traders by Nauzer J. Balsara is a good resource.

## Answer by babelproofreader (score 4)

https://quant.stackexchange.com/a/1994

Van Tharp's Definitive Guide to Position Sizing identifies 31 separate position sizing models (be sure to check out the extended table of contents). Specifically for futures trading, I quite like Ryan Jones' Fixed Ratio position sizing, a nice overview of which is available here, book on Amazon and OTT website here.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.