Trading mechanics
Position size
How many lots a trade is placed in. It is calculated from the dollar amount being risked and the stop distance, not chosen first - which is the reverse of how most traders approach it.
GFN’s figure
Sized against GFN's daily loss limits, a $100,000 account risking 0.5% per trade risks $500 - one tenth of the 5% daily allowance on the 1 Step, or one sixth of the 3% allowance on Instant.
- InstantDaily allowance on $100,000
- $3,000
- 1 Step and 2 StepDaily allowance on $100,000
- $5,000
- 0.5% risk per trade
- $500
In detail
Position size,explained
The calculation is fixed: risk in dollars, divided by stop distance in pips, divided by the value of a pip per lot. Change the stop and the size changes; keep the size and the risk changes instead.
On a prop account the risk figure has to be set against the daily loss limit rather than against the account balance, because the daily limit is the constraint that actually binds.
Related
Terms thatcome with it
Most rules only make sense next to the ones they interact with. These are the entries this one depends on.
Lot
The unit position size is measured in. One standard forex lot is 100,000 units of the base currency; mini and micro lots are one tenth and one hundredth of that.
Stop loss
A resting order that closes a losing position at a predetermined level. It is the mechanism that turns a risk-per-trade figure into an actual limit rather than an intention.
Fixed fractional
Risking a constant percentage of equity on every trade, so position size falls after losses and rises after gains. It is the standard position-sizing model and the one most prop rules assume.
Daily loss limit
The most an account may lose in one trading day before it breaches. Calculated as a percentage of the previous day's closing level, it resets at a fixed time each day and is the rule that ends most evaluations.
Risk-reward ratio
The size of a trade's target relative to its stop, expressed as a ratio. A 2:1 trade risks one unit to make two, which sets the win rate the strategy needs in order to be profitable.
Also governed by /rules/margin-and-lot-size
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