Basic concepts of the risk management system

We all know that risks need to be managed. I'm going to buy a stock, futures or something else, and you know at what level you will come out, then you know how to calculate the optimal number of lots in a deal, especially I will show some examples and the simplest formulas for risk management on the stock exchange.

The 2 percent rule

There is a rule of thumb that tells us that we should not risk more than 2% of capital in every trade. I don't even know where I haven't seen this rule: it's everywhere. And I agree that knowing your risk in advance makes it easier to stick to the deal. That's where the first formula was born. The maximum loss in a trade is equal to the product of risk times capital:

MaxLoss = (Risk / 100) * Capital

If the capital is 10,000 rubles, then at risk 2% you have to risk an amount of 200 rubles, no more. Now we have something to start with when calculating the number of papers.

To calculate the maximum number of securities in order to keep the risk within the given limits, we must know the entry price and the exit price in case of an unfavorable outcome (that is, the limit price of the stop-loss). For now let's calculate all this with the broker's commission for buying or selling one lot:

Убыток = |ЦенаВхода — ЦенаВыхода| + 2 * Комиссия

Обратите внимание, что в формуле мы узнаём абсолютный размер убытка (модуль). Допустим, мы хотим купить какую-либо акцию за 200 рублей, и продать по 180 рублей, если она пойдёт против нас (например, упадёт до 188 рублей). Считаем, и получается что убыток на акцию равен 20 (то есть 200 — 180). Прибавляем удвоенную (так как совершили сделку в 2 стороны) комиссию в 2 рубля, получаем 24 рубля потенциальный убыток. Готово, теперь посчитаем, сколько при таком раскладе бумаг можем себе позволить:

Quantity = MaxLoss / Loss

Simply divide the maximum loss by the loss from one lot. Получаем в нашем примере 200 / 24 = 8,333(3). Округляем до меньшего — получаем 8. Вот и всё. Мы можем купить 8 акций.

If you've already made a trade, it's helpful to know the risk in it. Here's a complex formula:

Risk = ((Loss * Quantity) / Equity) * 100

Suppose we bought 15 lots for the same potential loss per share. So our risk equals ((24 * 15) / 10000) * 100) = 3.6%. Yes, we clearly exceeded it, cut the position!

Use these simple risk management formulasto stay within the limits of the allowed loss.