0_public:trading:2pct_rule
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+ | ====== 2% Rule ====== | ||
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+ | One popular method is the 2% Rule, which means you never put more than 2% of your account equity at risk. https:// | ||
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+ | The 2% Rule also creates a structure for your trading decisions, as illustrated in Table 2. For example, assuming you have a USD 50,000 account and you want to buy 5 Canadian Dollar contracts, the 2% Rule tells you that you could risk no more than 20 ticks on the trade (5 contracts x USD 10/tick x 20 ticks = USD 1,000). If you wanted to operate with a more liberal 50-tick stop, you could only buy 2 contracts. Similarly, if you wanted to buy a larger position, say 20 contracts, you could risk no more than a scant 5 ticks. https:// | ||
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+ | Once you have a stop level, then you know the trade’s risk. For example, if your stop is 50 ticks from the entry price and each tick is worth $10, then your total risk for one contract is $500; if each tick were worth $5, then you could have a position size of two contracts and still maintain your risk at $500. https:// |