Most youd risk on one market

[foxwood]

There's a film in there somewhere

[Alpha322]

Well, I thought it was anyway

Seriously though, would love to hear others thoughts or choices and decisions about how they choose their staking levels.

People especially New Traders think the more bigger your bank the more you can put in and the more you can make. Me personally i use to fit stakes to a price ie if i wanted £5 per tick etc , but i dont do this any more. Your returns are reliant on how well you manage your positions and how much is in the market for you to get out, if i see roughly there is £200-300 stakes on the ladder my biggest stake for that market would be say £500 (Built up of £125 stakes) Scale in, and then scale out if market going for or against. Its about managing and keeping in flow with what the market has with in it not Staking

[stueytrader]

Well, I thought it was anyway

Seriously though, would love to hear others thoughts or choices and decisions about how they choose their staking levels.

People especially New Traders think the more bigger your bank the more you can put in and the more you can make. Me personally i use to fit stakes to a price ie if i wanted £5 per tick etc , but i dont do this any more. Your returns are reliant on how well you manage your positions and how much is in the market for you to get out, if i see roughly there is £200-300 stakes on the ladder my biggest stake for that market would be say £500 (Built up of £125 stakes) Scale in, and then scale out if market going for or against. Its about managing and keeping in flow with what the market has with in it not Staking

Yes, it's a fair point that picking a 'staking level' is not the entire picture of course. However, it's still possible to either scale up, or scale down, in your basic staking amounts used - I'm pretty sure Peter uses far bigger stakes than I do for example, even though we may be using the same markets and/or method to do it.

[stueytrader]

Care to share more detail on this?

I was working for a firm called DST on a trading system called Impart, something like 45 of the top 50 investment management firms used it, front and back office stuff. At the time it didn't have a derivatives trading module. Barings and a couple of others (Nomura and Goldman's I think) sponsored the development of one and I designed it and oversaw the dev. I met Nick briefly when I went out to Hong Kong for the implementation of the first release. A lifetime ago when I was a young hotshot. It was at a time when you could just write stuff and go and install it, when dev got serious and procedural it took all the fun out of it.

Oddly, nerdily, cool to have been a part of the story though Shaun

Did he mention you in his book I wonder....

From sounds of it, he was going against having the kind of safeguards that would have limited his own trading?

[matekus]

Trader Risk-of-Ruin Max Stake Sizing

For traders, here are two ways to calculate our maximum stake per market, held fixed for the duration of a session. Treat the output ('s_max') as a ceiling to stay comfortably underneath, not a target to reach.

The equation we will use is:

'Fixed-Stakes Exponential RoR Approximation'

s_max = 2m * D / (v * ln(1/r))

where:

• s_max = maximum liability per market, as a fraction of starting bank (ceiling)

• m = mean of market outcomes

• D = drawdown from your starting balance (not the running peak - see caveats)

• v = variance of market outcomes

• r = risk-of-ruin

's_max' (in GBP) is held fixed for a session; recalculated at session end.

---

---

The two approaches are just two ways of estimating the historical mean ('m') and variance ('v') of our trading. Session length can be a day's worth of markets, a week's worth, or more. The only constraint is that 's_max' is recalculated at the end of each session, not with each new market traded. Note that 'session' is our choice rather than something the equation provides - see caveat 2.

For both approaches, we have the following common inputs:
- Session Bankroll: GBP10,000
- Drawdown Threshold: 50% (D)
- Risk of Ruin: 5% (r)


**Method 1: Wins and Losses**

If we want to ballpark 's_max' then we need the historical number of markets traded over multiple sessions, the number of profitable markets, and the average decimal odds:
- Historical Markets: 300 # Not meant to be realistic
- Historical Profitable: 156 # Not meant to be realistic
- Historical Average Odds: 2.12 # Not meant to be realistic

At decimal odds of 2.12, a win returns 2.12 - 1 = 1.12 per unit staked and a loss returns -1.00, with p = 156/300 = 52%:
- WL Results Mean (m) = 0.52(1.12) - 0.48(1.00) = 0.10240
- WL Results Variance (v) = 1.12180

From these we calculate an optimistic 's_max', which stake value (GBP305) becomes our fixed ceiling for each market this session:
- WL Max Stake: 3.05% = GBP305


**Method 2: Profit and Loss**

By contrast, if we have access to our profit-and-loss records across multiple historical sessions, then for every settled market we take our net P&L after commission and divide it by the maximum liability we had on that market. That gives a list of numbers such as +0.35, -0.35 and -3.00, each a multiple of that market's liability. For this toy distribution, we calculate 'm' and 'v':
- PnL Markets: [52.00%, 47.50%, 0.50%] # Must sum to 100%
- PnL Results: [+0.35, -0.35, -3.00] # Multiples of liability
- PnL Results Mean: 0.00075
- PnL Results Variance: 0.16689

From these we calculate a more realistic 's_max', which stake value (GBP15) becomes our fixed ceiling for each market this session:
- PnL Max Stake: 0.15% = GBP15

**Twentyfold Difference**

- Counting wins and losses m = 0.10240, v = 1.12180, 3.05% GBP305
- What actually happened (P&L) m = 0.00075, v = 0.16689, 0.15% GBP15

Same trader, same strike rate, same average odds, and a 20.3-fold difference. The arithmetic shows where it goes. The first two outcomes contribute 0.52(0.35) + 0.475(-0.35) = +0.01575. The third (one market in two hundred, losing three times the intended liability) subtracts 0.005(3.00) = 0.015, leaving 0.00075. One rare disaster removes 95% of the edge.

That is the argument for keeping P&L records rather than a win rate.

One practical note if you rebuild this: the outcome probabilities must sum to 100%.

There are a number of important caveats.

Caveats -
1. Treat the output ('s_max') as a ceiling to stay comfortably underneath, not a target to reach.
2. Formula asks whether you will ever hit the drawdown, not whether you will hit it in your next 250 markets.
3. Formula measures drawdown from the starting balance rather than from the running peak, which flatters the result.
4. Formula assumes recent history represents realistic expectations for the current session.
5. If the mean is zero or negative, 's_max' equals 0%: no positive stake is safe without an edge.

Note: LLM used to check the calculations.

[Kai]

Seriously though, would love to hear others thoughts or choices and decisions about how they choose their staking levels.

These types of queries assume everyone trades the same way, but you can only stake whatever makes most sense to your approach and execution.

I mean, if you have a bit of common sense, how much math do you really need to find your comfort zone?

An order flow trader scales their stakes based on opportunity quality and confidence.

A market maker should always be hitting his exposure limit.

A speed merchant is essentially a flat-stake Andy.

Etc etc

[stueytrader]

Seriously though, would love to hear others thoughts or choices and decisions about how they choose their staking levels.

These types of queries assume everyone trades the same way, but you can only stake whatever makes most sense to your approach and execution.

I mean, if you have a bit of common sense, how much math do you really need to find your comfort zone?

An order flow trader scales their stakes based on opportunity quality and confidence.

A market maker should always be hitting his exposure limit.

A speed merchant is essentially a flat-stake Andy.

Etc etc

I agree, as someone earlier pointed out, type of trading will of course impact the type of staking used. That's a good breakdown you list.

I think what is deceptively more complex is the other point - your wording 'comfort zone'. That's a far wider and potentially flexible question. Personally I think after decades betting and trading, it relates closely to wider finance. Risking 500 quid to one person will be like pennies, to another would be like putting their life on the line. And in this issue that means risk accepted, whatever type of betting or trading they are carrying out. As I mentioned earlier, those decisions can be partly flexible, but will vary from person to person. I am happy knowing 15% of my wider finance is in trading. I wouldn't be happy with 30%. Someone else may be.

I also think a hidden factor here is also the 'aims' of a trader or punter. Are you aiming to: have fun, make a hobby income, make a solid side income, be full time creating an income.

[Kai]

I think what is deceptively more complex is the other point - your wording 'comfort zone'. That's a far wider and potentially flexible question.

I think that part becomes pretty clear? Once you go through the wringer enough times.

It's whatever position size makes you unbreakable mentally and emotionally. So that you can properly execute on your strats.

But yes, ultimately everything connects back to the comfort zone, both in and out of trading. There are very few real risk takers out there in reality. Your stakes are directly tied to your confidence level in the strategy you're using and how strong you think your edge is. If they're not, that's just bad execution in a nutshell.

Which doesn't mean you should never heavily "overstake" either. You absolutely should when there's a time and place for it, it makes the execution far more annoying but if you know that market inside and out and have learned its patterns, you can and should stake far above to what the market can "handle". There is often more depth to a market than what is visible at first glance. But for inexperienced traders overstaking after a few good results often only results in reverting to mean and misery so should be avoided.

Risking 500 quid to one person will be like pennies, to another would be like putting their life on the line. And in this issue that means risk accepted, whatever type of betting or trading they are carrying out.

I feel the word 'risking' there is far more tricky and misleading for example. Because I don't think many traders are risking much at all.

Speaking of veteran traders, the pros, the longterm winners, professional mouse clickers or whatever term you wanna use, they (should) know exactly/roughly what their averages look like and can already anticipate good/bad days based on markets/opportunities at hand. Even with a decent amount of variance, they shouldn't expect too many losing days, the risk they take on is calculated risk at worst. In their case losing days/weeks are not impossible but it is often a statistical improbability.

And it's not a hard concept to grasp either, when they're basically flipping a heavily biased coin like 60/40, 70/30, 80/20 or 90/10 in their favour. And the only real trick is finding enough of these damn coins.

Some traders only place bets at 100/0 ratios, like courtsiders and other speed merchants, they quite literally take on zero risk, that's sometimes their whole game. Whether they are top elite traders with carefully honed trading skillset and mentality is up to debate, and would likely require a 100 page megathread to try and determine that one!

Afaik, it all comes down to a simple fact that Warren Buffett once said, that risk stems from uncertainty, not stake sizes. Think about it, if you have NO IDEA what today's markets are going to look like, if you have NO CLUE if your price is value or not, well then you're going to take on a lot of random risk. And produce a lot of random results. Meanwhile, speed based traders have completely eliminated that uncertainty, because they're only placing bets on known outcomes. If a trader can nudge themselves somewhere inbetween these 2 extremes then they've probably done very well.

Anyway, the more you learn about your market the less it can surprise you and the more edge you get over it. Staking for me should become quite obvious along the way.