Can anybody help me see the differnces between these two money management methods?
a) I have a trading system and I'm willing to lose up to $5,000 on a $10,000 account. I'll limit my risk per trade to 2%. I'll keep trading until I make $10,000 or lose $5,000.
b) Using the same system, I'll only deposit $5,000 on my account and limit risk per trade to 4%. I'll keep trading until I make $10,000 or lose all, which is $5,000.
To me, these two different money management will produce the same result. For both systems, I risk $5,000 to gain $10,000. Number of lots per trade is exactly the same for both systems since I use 2% risk on a $10,000 account for system (a) and 4% risk on a $5,000 account for system (b).
If these two money management is the same thing, why would I deposit $10,000 on my account? I can gain the same result by depositing only $5,000. Note that I'm only willing to lose up to $5,000 for both methods.
To me this doesn't seem like a psychological difference since I'll either lose $5,000 or make $10,000 in the end.
Any comments will be appreciated!
a) I have a trading system and I'm willing to lose up to $5,000 on a $10,000 account. I'll limit my risk per trade to 2%. I'll keep trading until I make $10,000 or lose $5,000.
b) Using the same system, I'll only deposit $5,000 on my account and limit risk per trade to 4%. I'll keep trading until I make $10,000 or lose all, which is $5,000.
To me, these two different money management will produce the same result. For both systems, I risk $5,000 to gain $10,000. Number of lots per trade is exactly the same for both systems since I use 2% risk on a $10,000 account for system (a) and 4% risk on a $5,000 account for system (b).
If these two money management is the same thing, why would I deposit $10,000 on my account? I can gain the same result by depositing only $5,000. Note that I'm only willing to lose up to $5,000 for both methods.
To me this doesn't seem like a psychological difference since I'll either lose $5,000 or make $10,000 in the end.
Any comments will be appreciated!