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Risk Parameters Controlled by Self Directed Futures Traders

Traders, I am interested in your feedback on how you would like to control your trading better.

What risk parameters would you enable to control your trading both strategically and psychologically. What functions would you ask your broker to enable to put yourself in better control?

Please explain why you are asking for these functions.

Thank you,
Matt Z
Optimus Futures

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Thanks for the question, it’s good to pose these types of questions.

For me, I think the fairly typical risk controls are best for me as follows:

  • My most important risk control is a combo of the two bullet-points directly following this. That is, reduce max position size the closer I get to hitting my daily loss limit. This is hard to program in software, but it would be nice. Let’s say my daily loss limit is $1,000 and my max position size is 5 mini contracts (or 50 micro). Once I lose $200 on the day (which is 20% of my daily loss limit), my max position size is similarly reduced by 20% or 1 contract (10 micro). Once I hit $200 loss on the day, my max position size becomes 4 contracts instead of 5. And so on. Of course, this can get hairy when trading both minis and micros or when trading entirely different instruments. I will trade both ES/MES but not two completely different instruments on the same day. The purpose of this risk control is to prevent me from hitting my daily loss limit by reducing the number of contracts I can trade at one time. It becomes harder for a bad day to turn into a worse day.

  • Daily loss limit (“DLL”) in terms of dollars (or percent of day’s starting acct balance, like 5%) that I can adjust myself, but also have set at the IB/FCM. That is, have the IB set a daily loss limit of say $1,000. But allow me to set my own to any amount under $1,000 (e.g., $500). This would allow me to adjust my DLL based on how I feel, how I’ve been performing, how realized vol is changing, or whatever. But I would always have the DLL set at the IB that I can’t change unless I call you or write an email. And of course, the FCM could have its own loss limits, as well, whether it be daily or min acct equity.

  • Max number of open contracts and max number of pending orders. I think max pending orders should always be exactly double the max position size to allow for OCOs. Similar to the above, there would be a limit set by the IB or FCM based on margin requirements. But I would like to be able to set my own max position size at some number under the max set at the IB/FCM so that, again, I can reign myself in when I’m doing poorly and open up the gates when I am doing well—up to the max set at IB/FCM. This should be allowed on a per-instrument basis.

  • Disable trading and auto liquidate if account equity drops below a specified level. Instead of a daily loss amount, this is based on account equity. Again, have one level set at the IB and one that is end-user controllable. If trading is disabled, then end-user must contact that IB to get it re-enabled.

All except for the first item, these appear to be built into R Trader and R Trader Pro.

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This is the exact type of feedback I was looking for.
Maybe others will provide their input as well.

Best,
Matt Z
Optimus Futures

1 Like