Capital at Risk

[robster970]

Another question from another Newbie. I'm building money/risk mgmt into my ATS.

Do you work out capital at risk to include the current value of open positions as well as any unused capital? If so aren't you inflating your value at risk and therefore worsening a possible stop-loss position before you've closed said position?

Also where should I look for indicators/methods to work out market volatility so I can incorporate this into the trade size calculations?

cheers

robster

 

[robster970]

bump - can anybody answer - I'm currently resorting to using the price paid to calculate values of open positions for calculating capital - is this correct?

 

[Rhody Trader]

Capital at risk is generally considered to be based on the total capital of your account - used or otherwise. For example, if you want to risk 1% on a position, that's 1% of your total account value, not 1% of that position in question (unless of course the two are the same).

As for market volatility, Average True Range (ATR) is a commonly used measure.

 

[robster970]

Capital at risk is generally considered to be based on the total capital of your account - used or otherwise. For example, if you want to risk 1% on a position, that's 1% of your total account value, not 1% of that position in question (unless of course the two are the same).

As for market volatility, Average True Range (ATR) is a commonly used measure.

So does the capital value assume the current price of open positions or the price paid/stop-loss for open positions?

Ta for ATR btw.

 

[Rhody Trader]

People differ on whether they use market-to-market value or position entry value for active risk measurement. Stock traders will often favor the latter since they can't pull any money out of their account until they close a trade down. Futures and forex traders will often go the other way because of the market-to-market gains and losses immediately credited to their account. In the end, though, it's really a personal choice decision - what makes the most sense for you.

 

[robster970]

People differ on whether they use market-to-market value or position entry value for active risk measurement. Stock traders will often favor the latter since they can't pull any money out of their account until they close a trade down. Futures and forex traders will often go the other way because of the market-to-market gains and losses immediately credited to their account. In the end, though, it's really a personal choice decision - what makes the most sense for you.

Like most of what I'm discovering about all of this, there are sensible things to do but how you choose to do it is your own perrogative.