Staking Plans – Level Stakes or Alternatives?

Filed under: Learn Forex Trading |

Screen shot 2013-08-15 at 09.39.31Just like in the world of professional gambling, trading forex requires traders to decide on the stakes that they are going to trade with. The simplest way of doing this is to trade with level stakes. For example, if you have a bank of $10,000 to trade with, you could trade with $100 level stakes, meaning that you will risk $100 (or 1% of your original trading capital) on each trade. This is a sensible way to go – but as you can realistically only make gains of 20-30% per year, this is not going to get you rich very quickly, and it may well not achieve your aims. So what are the alternatives?

 

One alternative is to trade 1% of you trading capital, but as that capital increases; your 1% should reflect this. So, if you make $1000 profits on your $10,000, you should now trade with 1% of $11,000, which is $110 per trade. However, you should not decrease this as your capital goes down, and only increase your stakes as you reach new highs in your equity chart. This will help you to make profits quicker, while also bearing in mind any drawdowns.

 

Perhaps another alternative is to vary your stakes depending on how strong you consider the setup to be. For example, if you think it is a weaker setup, you could only risk 0.5% of your bank, and if it is a very strong setup, you could risk 2.5% of your bank. However, this is a very subjective approach, and should only really be used by experienced traders.

 

There are also some loss recovery staking systems whereby you increase your stakes after a loser. However, a very high strike rate is needed for such a staking plan, otherwise, you may experience some very large drawdowns.

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