How many lots?

[doragio]

Need some feedback as to how many lots people are trading per their account size. Suppose I have a $50,000 account, how many lots per currency should be traded? So with (1) 100k lot on all 4 majors simultaneously; that's an effective leverage of 400k. 1 to 8 if my math is right. Would this be considered a bit on the conservative side or over exposing?

I guess I'm trying to get a feel of how much traders are exposing of their account. The stop loss can also come into the equation because that is the better measure of how much on each trade is risked. And I know that this risk amount is going to vary from individual to individual, but just trying to get an idea as to how other traders handle it.

Thanks!

[Burtakus]

I am just a begginer here so take what I say with a grain of salt. I have wondered this myself and would be interested in what more experienced traders hace to say on this subject.

In reading "Technical Analysis of the Futures Markets" by John J. Murphy, a section covering money management gives an example of how much to expose yourself. I will use your 50K as an example.

1) Your total commitment to any trade should be no more than 10% of equity. Example: 10% of $50,000 is $5,000. With this you could trade as many contracts as possible as long as you do not use more than $5,000 margin. If one lot requires $1,000 margin then 5 lots. If 1 lot requires $500 margin then 10 lots.

2) Total amount risked should be only 5% of equity. In your case only 5% of $50,000 ($2,500) should be risked. This figure is used to determine how many lots you should trade given your stop loss point. Example: If the Euro pays 10$ per pip then you could have a loss of 250 total pips before you hit -$2,500. If you play 10 lots then your stop loss can only be 25 pips from your entry point. 5 lots would allow for a 50 pip stop loss.

I am currently learning how to trade with a demo account so most of what I say is purely academic. I am however using this strategy myself while learning to trade and building my trading system. I also reccomend reading the book I mentioned earlier. Being a begginer I found it very helpful and informative. It has helped me with trading as well. It was originally written as a text book for a comodity trading course at the New York Institute of Finance.

For you experienced folks out there please let me and Doragio know if I am totaly off base.