How does the choice of Stop Losses and the size of lots to trade relate to order/risk management?
When people say: "don't trade/risk more than 2% of your balance (or free margin?) in an individual trade"
1) Do they mean to restrict the S/L to a certain point number which does not account for more than 2%
2) Do they mean to restrict the size/fraction of the lot to trade such that it is not more than 2% of your account?!
3) Only N positions to account for say 20% of your account and restrict Stop Loss to 2% of balance each
Let's say I use a fixed leverage of 20:1 and have an account balance of $1000 on a micro lot (0.01) account.
The smallest possible trade I can make is to buy a 1000 units (0.01 lot) which needs roughly $50 of margin with 20:1. That's already 5% of my account!
Or is it better to buy any position size (with a risk of say 10% of my account) but a stop loss which does not risk more than 2%?
Which would be with a pip value of $0.10 which would be 200 pip?
Thanks for any clarifications!
When people say: "don't trade/risk more than 2% of your balance (or free margin?) in an individual trade"
1) Do they mean to restrict the S/L to a certain point number which does not account for more than 2%
2) Do they mean to restrict the size/fraction of the lot to trade such that it is not more than 2% of your account?!
3) Only N positions to account for say 20% of your account and restrict Stop Loss to 2% of balance each
Let's say I use a fixed leverage of 20:1 and have an account balance of $1000 on a micro lot (0.01) account.
The smallest possible trade I can make is to buy a 1000 units (0.01 lot) which needs roughly $50 of margin with 20:1. That's already 5% of my account!
Or is it better to buy any position size (with a risk of say 10% of my account) but a stop loss which does not risk more than 2%?
Which would be with a pip value of $0.10 which would be 200 pip?
Thanks for any clarifications!