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The importance of managing position sizing in trading


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Position sizing is a fundamental factor in trading to manage risk. This concept is used to determine how much capital is allocated in trading.

Proper position sizing can minimize the impact of risk in trading so that in one trading transaction you do not experience a margin call too quickly due to using a position size that is too large.

Determining position sizing is closely related to the leverage used. As is known, leverage is like a double-edged sword. On the one hand, you can increase profits, on the other hand, the risk is higher.

Ideally, high leverage allows traders to create higher position sizes than low leverage, but the impact can narrow the margin level that measures account strength.

Things that need to be considered when making position sizing are risk tolerance and market volatility.

To determine risk tolerance, each trader may have a different method. Some determine based on the risk percentage, and some determine based on the value in dollars.

In determining the stop loss, the trader has previously calculated the risk tolerance in a trading plan and will adjust the position size to adjust the stop loss to the risk tolerance.

For a more comprehensive explanation of position sizing, you can visit the FXOpen blog and find the article with the title Optimal Position Size May Reduce Risks

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