Tom Dante

Tom Dante

23-10-2022

12:49

Risk (A thread) When you're assessing risk, it's worth bearing in mind the difference between what you will load an account with and the full amount you are actually prepared to commit to the market.

To explain further: A trader may have 50k they're prepared to commit to the market but decide to fund their account with 1k each time.

Some do this because they don't want to park too much money with the broker (and don't need to do so due to leverage). Some do it because they like the thrill of trying to flip a small amount.

If they risk this 1k account on a single trade and it loses, anyone that knew would say: "You risked 100% of your account?! You fucking moron!" But in that trader's head, the account was just 2% of their 50k pot and therefore they weren't "all in" and it was no big deal.

In that example, the trader can disregard what everyone says because those people are not privy to the size of the "pot".

Using another example: There is no point learning an edge, having 10k available to invest in this endeavour and then funding 1k and risking 2% of it per trade. That would result in 0.002% risk of the pot per trade and you're just slowing your growth massively.

But the real issue I find is that many traders simply do not know their pot size. Put simply, they don't how much they will sink into this endeavour. This is when it can get dangerous.

I know of many losing traders who keep sinking 1k at a time, blowing it and have no idea of how much they are down since they started or when they will ever stop. I honestly think this is a recipe for disaster.

I personally advocate traders not funding with the full amount (because it mitigates broker risk and with leverage there is no need) but to repeat: I firmly believe you should know the pot size or at least have a pretty firm idea of it.

Even if you don't know exactly how much you would commit ahead of time, you should have a pre- determined amount, that if lost would cause you either to stop completely or pause for a very serious break and evaluation.


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