Q: I tried to play the game, but somehow, I could not relate the game to futures trading. I am a day trader on Bund, and found the concept of position sizing great, but how does it relate to futures trading; moreover, futures trading only one market?
A: The only way the trading game does not relate to the futures market is that no leverage is allowed. That’s not true of the futures markets. However, you can get in a situation similar to a futures trade in the game.
So let’s decide that you have $100,000 in the game. You are trading a $50 stock and risking $1. And you want to risk 3%. That means you can risk $3,000. If you decide that your stop is $1, then you need to buy 3,000 shares, which would cost you $150,000 (which is more than your equity). In the game you cannot do that because no leverage is involved. However, in markets, which allow leverage (and that’s allowed in the stock market with margin accounts), you can buy the 3,000 units.
And theoretically your risk is 3%. However, say the market gapped $3 against you on the open (i.e., you have a 3R loss). You now have a loss of $9,000 or 9%. Without leverage, you could not have taken the trade or you could only have done 2% risk. That’s the difference.
Nevertheless X% risk is X% risk no matter what market you are trading.
A word of caution: When you have high leverage or tight stops, you can still have huge losses. For example, if you had a 10 cent stop on a $50 stock and it gapped $2 against you, then what you thought was a 1% risk is now 20% risk. And this kind of loss is much more likely when leverage is involved.
Otherwise, as I said, X% risk is X% risk and it doesn’t matter whether you are trading stocks, options, forex, or futures.
