by , 08 July 2021

“I've recently signed up to Pickpocket Trader and wanted to ask a question.

In the Welcome Guide you suggest, you never risk more than 2% per trade.

However, when we are entering into a number of trades we are risking a larger amount with our portfolio. My question is, what is the maximum number of open trades I should have in my portfolio at any one time?”

The first question you need to ask is…

“What percentage of my portfolio am I willing to risk at a time?”

This will give you an indication of how many trades you’ll be willing to hold.

When I trade, I never want to risk more than 8% of my portfolio.

If I only risk 2% of my portfolio per trade, this means I’ll make sure to never have more than four trading positions opened.

If the market environment is unfavourable, then I never risk more than 1% of my portfolio per trade.

This means, I’ll be happy to hold 8 trades, as my risk is lower per trade.

This general rule has helped me control my risk and never blow my portfolio…

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Q. “With the most recent trade sent out with Pickpocket Trader, how do I work out the number of CFDs to buy with Brent crude using a R200,000 portfolio with a 3% risk per trade. Can I use the Risk in US dollars divided by the Risk in trade (entry – stop loss) calculation?”

A.  Yes definitely. It’s a calculation that you can also use to work out the number of CFDs to buy, that not many people know about.

First, when you buy 1 CFD of Brent Crude you’re essentially buying 1 lot size with a contract of 100 barrels

In other words, when you buy (go long) 1 Brent Crude contract you’ll be exposed to 100 barrels of oil.

At \$77 per barrel that amounts to \$7,700 total value (100 barrels X \$77).

Allow me to break up the position size calculation with an example.

Let’s say you have a R200,000 portfolio and you only want to risk 3% of your portfolio or R6,000.00.

With the USD/ZAR exchange rate of \$1/R14.30 this means your risk per trade is \$419.58 (R6,000 ÷ R14.30).

You buy (go long) Brent Crude CFDs with an entry price at \$77.00 and a Stop loss at \$73.30.

Here’s how to work out how many Brent Crude CFDs to buy using the calculation.

Position size = (Risk total ÷ Risk in Trade value per contract)
= (\$419.58 ÷ [(\$77.00 - \$73.30) X 100 barrel]
=  (\$419.58 ÷ \$370)
= 1.134

HOLD ON!

Technically, the ideal CFD position to buy is 1.134 CFDs however…

On most broker platforms (like Rand Swiss using Velocity Trader) each there are only CFD increments of 1 instead of fractions.

This means, you’ll need to round down the number, in order to not risk more than what you plan to risk.

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For example, if you typed 2 CFDs, look at the risk you’ll take instead.

Instead of risking under R6,000 (3%), you would risk 5.27% or R10,552 which is more than your risk tolerance.

Now you know how to calculate your position sizing when trading Brent Crude CFDs…

Timon Rossolimos,