Just starting out trading on my own (spent years at an investment firm trading and portfolio management so have experience just not on my own). I have a few questions I have come up with as I set up my trading style.

Q1. I am starting with a $50,000 but will have a margin account so it should be $100,000 to use. Let's say I use a 2% risk per trade. Would I do 2% of the 100k or the 50k?

Q2. I trade 9 specific stocks and 5 specific commodities. To determine how much to allocate to each market, i would take 100k divided by 14 and that's the amount to use. Or is their some other way to formulate this? Under this scenario I would be allocating ~7% to each market (based on the 100k). Is that considered too much?


I do have more questions but that's it for now. Thanks in advance.

jwcap70 

Just starting out trading on my own (spent years at an investment firm trading and portfolio management so have experience just not on my own). I have a few questions I have come up with as I set up my trading style. Q1. I am starting with a $50,000 but will have a margin account so it should be $100,000 to use. Let's say I use a 2% risk per trade. Would I do 2% of the 100k or the 50k? Q2. I trade 9 specific stocks and 5 specific commodities. To determine how much to allocate to each market, i would take 100k divided by 14 and that's the amount to use. Or is their some other way to formulate this? Under this scenario I would be allocating ~7% to each market (based on the 100k). Is that considered too much? I do have more questions but that's it for now. Thanks in advance.

Q1: 2% of 50k

Q2: I would look at each market and the historical draw downs of whatever strategy you are using when determining what to allocate to each market.

I suggest starting with much less. If you have 50k, then start with 10k. This is assuming you are swing trading. Only after you have proven after say 6 months that you have grown your account using acceptable risk should you consider increasing that amount.

If you are day trading, you are forced to fund with 25k to get past PDT rules, but I would still suggest you only trade a small portion of your 25k account in the beginning. There is no reason to dive head first. Stick a toe in. Then after six months, you can put both feet in - but only up to your waist... just take it slow.

You risk percentage is based on your cash account, so 1 or 2% of your cash account balance. And as for how much to risk in each sector, you need to really understand the correlation across these products. If you are in similar sectors, then it is effectively the same as risking far more than the initial 1 or 2% because of the correlation.

Everything is somewhat correlated, but here is a site from a quick search that shows some correlations:

ETF Screen - Correlation

Mike