A Thread:
Position Sizing in Leverage Trading or Futures Trading.
As it has always been said by so many experienced traders in the field.
“It’s not about the leverage, It’s about position sizing.”
Position Sizing in Leverage Trading or Futures Trading.
As it has always been said by so many experienced traders in the field.
“It’s not about the leverage, It’s about position sizing.”
Taking Binance (CEX) as a case Study I’ll be explaining it with basics using Futures Trading.
Position Size also means the amount of available capital for a particular position not the entire portfolio.
TAKE NOTE: Spot account is not inclusive.
Position Size also means the amount of available capital for a particular position not the entire portfolio.
TAKE NOTE: Spot account is not inclusive.
1.
Straight up to an example. If I were to take a trade on a portfolio worth $200 and I leverage a position with 50x.
The original amount of capital in the trade is $20 out of the $200 portfolio which is 10% of the portfolio. I can look to gain 200% of my $20 which gives $40 to
Straight up to an example. If I were to take a trade on a portfolio worth $200 and I leverage a position with 50x.
The original amount of capital in the trade is $20 out of the $200 portfolio which is 10% of the portfolio. I can look to gain 200% of my $20 which gives $40 to
be added to the original margin.
I exit the trade with a PNL of $60 in total. In this case a 4% move on the token multiplied by the 50x leverage prints a 200% ROE when I decide to share my trade banner. In the same way if the trade goes against me by 4%,
I exit the trade with a PNL of $60 in total. In this case a 4% move on the token multiplied by the 50x leverage prints a 200% ROE when I decide to share my trade banner. In the same way if the trade goes against me by 4%,
I’ll be in a loss of –200% on the ROE% which means I am currently losing my current capital of $20 and an extra $60 from my initial balance of $180 which leaves me with an unrealized loss of $60 and a portfolio balance of $140.
This applies on Cross Mode. On Isolated Mode you will be liquidated when the move goes to –100% in ROE%.
2.
Also, A trade with $100 and 5x leverage gives a $50 profit at 50% ROE which is a 10% move in the positive direction and on a trade with $500 and 2x leverage a 5% move
2.
Also, A trade with $100 and 5x leverage gives a $50 profit at 50% ROE which is a 10% move in the positive direction and on a trade with $500 and 2x leverage a 5% move
which prints 10% ROE gives the same $50 profit as the trade with $100 and 5x Leverage.
3.
Another example: If I take a position with $20 and 100x leverage on BTC, a 1% move gives me $20 worth of profit instantly and if I enter with $40 and 50x leverage the same 1% move gives me $20 profit same as the $20 trade.
Another example: If I take a position with $20 and 100x leverage on BTC, a 1% move gives me $20 worth of profit instantly and if I enter with $40 and 50x leverage the same 1% move gives me $20 profit same as the $20 trade.
A $100 trade with 10x leverage gives me more room to wait for a 2% move to achieve 20% ROE which also gives $20 profit same as the 100x trade and the 50x trade.
In another thread I’ll make a detailed explanation on how to trade Cross Mode with almost no risk and proper portfolio calculations.
Thank you for reading.
It’s my first thread. A bit sketchy. It’ll be worked on.
Feel free to retweet, drop your comments and questions.
Thank you for reading.
It’s my first thread. A bit sketchy. It’ll be worked on.
Feel free to retweet, drop your comments and questions.
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