Rules First · Lesson 3 of 9 · Free

Size against what you can actually lose

On a prop account, the money you can lose is the drawdown, not the balance. A $50,000 account with a $2,000 drawdown puts $2,000 at risk.

Key words

  • Contract: one unit of a futures market you trade. More contracts, bigger wins and losses.
  • Point: the unit the price moves in. Each point is worth a set number of dollars per contract.
  • MNQ, NQ: the micro and full-size Nasdaq-100 futures ($2 and $20 a point).
  • MES, ES: the micro and full-size S&P 500 futures ($5 and $50 a point).

Example: risking 0.5% “of the account” sounds careful:

0.5% of $50,000 = $250 a trade $250 of $2,000 = 12.5% of what you can actually lose

Eight full losses in a row and the account is gone. Good traders have eight-loss streaks too.

Three steps to your size

  1. Pick how many full losses you want to survive. Say 10: $2,000 / 10 = $200 a trade.
  2. Price one contract at your stop: points × dollars per point.
  3. Divide and round down, never up.
At $200 a trade: MNQ ($2/pt), 20-pt stop $40 each → 5 MNQ ($2/pt), 40-pt stop $80 each → 2 MES ($5/pt), 8-pt stop $40 each → 5 NQ ($20/pt), 20-pt stop $400 each → 0

When one contract at your normal stop is already over budget, the answer is the smaller “micro” contract (MNQ instead of NQ, MES instead of ES), not a tighter stop you wouldn’t otherwise use.

Then check the caps

  • The firm’s contract limit. Your number can be lower, never higher.
  • The daily loss limit. A full loss has to fit inside what’s left of it today.
  • The room you have left. The daily limit resets every morning; the drawdown doesn’t. So your real limit today is the smaller of the two.
  • Copied accounts. Five accounts at 2 contracts is 10 contracts on the same trade. One bad trade hits all five. And before any of that, check your firm allows copying trades across accounts at all. Some don’t, and some allow it only between your own accounts at that firm. The rules that aren’t about numbers.

Example: $2,000 drawdown, $800 daily limit. Three losing days, each under the daily limit:

Mon −$700 room $1,300 Tue −$750 room $550 Wed −$600 closed

Wednesday’s real limit was $550, not $800. The account closed without ever breaking the daily limit.

How many bad days can you survive?

Example: with a $2,000 drawdown and a $500 daily loss limit, four worst-case days end the account. With your own rule of “stop after 2 losses” at $200 each, your worst day is $400, so it takes five. That’s one more bad day your account can absorb.

Your turn

  1. Work out your dollar risk per trade and contract cap in the position size calculator.
  2. Check how many worst days your account survives in the drawdown runway calculator.
  3. Write both numbers at the top of your rules page from Lesson 1.
Done when: you have one fixed dollar risk per trade, a contract cap, and a daily stop, written down.

Next: write rules you can check

Lesson 4 turns vague rules (“don’t overtrade”) into ones you can check before every trade. It’s in the full course, coming soon. Lesson 7 is free to read now as a sample. Until then, the one-page rulebook and the Desk are free.

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Educational material only. Not investment advice. Trading futures involves substantial risk of loss and most people who try it lose money. Check your account rules with your firm; they change.

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