Position Sizing refers to a strategy to logically decide how much money to trade with and lower your risk. Its good practice used by pros and newcomers alike.
The concept of it is underlined by not making big bets with all your capital deposited on a spread betting platform – instead using just 1% of it per trade (or perhaps a bit higher, but not much).
Why? Because you don’t want to end up a with host of bad losses and end your foray into spread betting with a negative return.
Looking at practically, using 1% of your funds deposited suggests that you can have 100 bad trades before you do away with all your capital.
So let’s presume you have an account size of £50,000.
A risk factor of 1% is £500.
So let’s say you buy in at 150 and set a stop at 130.
Now take your £500 and divide it by the difference between the price you buy in and stop loss (20) This gives you a figure of £25 per point.
The idea of a position size in early single figures may seem on the cautious side – but remember, spread betting uses leverage so your gains can go much further than your initial outlay.
This is a useful concept to consider – the worst thing a spread betting can do is lose money and then compound their losses by betting more and more. Instilling discipline via position sizing is wise.