Rockwell Trading Recommendation - Risk Tolerance

Before trading real money in the markets, it is important that every trader establish for themselves what their individual risk tolerance is.  For example, if a trader has decided to open a $5,000 futures trading account, here are some key questions that Rockwell Trading feels should be answered:

How much of your starting capital are you prepared to lose?
What percentage of your account will you risk on a trade?
Where will you set your daily catastrophic loss limit with your broker?

If you have a low risk tolerance, you may determine that if you lose half of your starting capital ($2,500) that you will stop trading.  You might also establish that you will not risk more than 2% of your account ($100) on any given trade, and instruct your broker to shut down your trading account if you have more than a 10% drawdown ($500).

A trader with high risk tolerance may be willing to lose all their starting capital ($5,000), risk 5-10% on any given trade ($250-$500), and set-up a 50% daily catastrophic loss limit ($2,500) with their broker. 

All traders must accept that losses are part of trading.  Knowing your risk tolerance, and planning accordingly, will help you manage your losses as you look to grow your trading account.

Rockwell Trading Recommendations - Proper Account Sizing

Many beginning traders have a difficult time figuring out how much money to put towards trading.  Because different markets require a trader to invest different amounts, some markets can be cost prohibitive to beginning traders.  Rockwell Trading feels the amount of money you are willing to risk as a trader is something you should consider carefully before you begin.

Start by looking at your savings and then determine how much money you can comfortably set aside for trading.  This amount should be considered “risk capital” and must not impact your lifestyle should you lose all or part of it.

Now determine what your trading goals are and what markets you may want to trade. Here are Rockwell Trading recommendations on what account sizes are needed to trade various markets:

Forex market will require $500 in your initial trading account.

You should have anywhere from $1,000 to $5,000 in your trading account if you would like to trade Options.

To day trade Futures you will need between $5,000 and $10,000 in your trading account.

Stocks are the most cost prohibitive, requiring at least $25,000 in your account.

If you know how much money you have, the market you would like to trade, and have your financial goals in mind, the next step is determining your risk tolerance.