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[Sunny1]

A doubt on Position Sizing and Risk Management.

As per Dr.Elder Alaxander, we should risk a maximum of 2 % on any one trade and 6% maximum in a single month.

Now suppose I would like to trade the following scrips on a capital of Rs.1 lac.

xyz cmp 200 stoploss 190
abc cmp 1000 stoploss 900
123 cmp 3000 stoploss 2500

1. Since risk on xyz Rs.10 per share and 2% of Rs.1 lac is 2000, my position size should be 200. Taking into consideration slippage and brokerage, let us say position size is 150. So, my investment in this scrip is Rs.30000/-

2. Since risk on abc is Rs.100 per share and 2% of Rs.l lac is 2000, my position size should be 20. After slippage and brokerage, position size is around 15. My investment in this scrip is Rs.15,000/-.

3. Since risk on 123 is Rs.500 per share and 2% of Rs.lac is 2000, my position size should be 4. After slippage and brokerage, it should be around 3. My investment in this scrip is Rs.9000/-.

Total investment in 3 scrips comes to 30000+15000+9000 = Rs.54,000/-.

Fine.

But, out of Rs.1 lac I am able to deploy only Rs.54,000/- and remaining Rs.46000/- is not invested.

Does not it result in less capital untilisation thereby causing less return on whole capital of Rs.1 lac?

How to use complete capital of Rs.1 lac adhering the rules of position sizing and risk management of 2% and 6% of Dr.Alexander?

Guidance is appreciated.

Why you want to deploy all the funds ...??
after all we should trade when there is a trade not when we want to trade .. is it not?

Now your have that 3 trades and you trading and your rules permitting only 54k. when you will have another trade and you decide to take it you have 46 k for it and of course you will take only when your other 3 trades are in good profits otherwise that 6% a month rule will be broken.

The only purpose of these rule is to protect capital while Learn and Earn. the purpose is not at all to deploy money but to catch the opportunity with limited risk if you go wrong.

 

[veluri1967]

Why you want to deploy all the funds ...??
after all we should trade when there is a trade not when we want to trade .. is it not?

Now your have that 3 trades and you trading and your rules permitting only 54k. when you will have another trade and you decide to take it you have 46 k for it and of course you will take only when your other 3 trades are in good profits otherwise that 6% a month rule will be broken.

The only purpose of these rule is to protect capital while Learn and Earn. the purpose is not at all to deploy money but to catch the opportunity with limited risk if you go wrong.

Thatz fine.

Here I want compare a safe fixed deposit and working of my strategy.

Suppose I have Rs.1 lac. If I make a fixed deposit in a bank or so, I will earn a fixed return which is for sure. But if I make an investment of Rs.1 lac, my rate of return should be atleast double of that of bank or so return. Reason being I am taking risk of capital here.

In a fixed deposit, Rs.1 lac investment earns a fixed rate of return and you need not to spare your time, effort, or resources (like Internet connection, Brokerage charges, a computer if not a laptop etc). But in stock investing, these are all form overheads in addition to risk on the capital.

I want to compare how Rs.1 lac fares in fixed deposit or in stock investing. To know the fact, I should be able to invest entire Rs.1 lac in stocks.

Present bank rate is 8% which generates -4% negative actual return after inflation. I should be able to generate an actual return of 12% p.a. net of all. (That is Grossprofit - Brokerage, Taxes, Material, Risk, Efforts, Time should equal to 12% pa.). I know there are unquantiable variables in the equation. But they should be considered. For example, Time/Efforts. If you are not investing in stocks, you could use the time to do a full time job.

Cheers.

 

[alroyraj]

Thatz fine.

Here I want compare a safe fixed deposit and working of my strategy.

Suppose I have Rs.1 lac. If I make a fixed deposit in a bank or so, I will earn a fixed return which is for sure. But if I make an investment of Rs.1 lac, my rate of return should be atleast double of that of bank or so return. Reason being I am taking risk of capital here.

In a fixed deposit, Rs.1 lac investment earns a fixed rate of return and you need not to spare your time, effort, or resources (like Internet connection, Brokerage charges, a computer if not a laptop etc). But in stock investing, these are all form overheads in addition to risk on the capital.

I want to compare how Rs.1 lac fares in fixed deposit or in stock investing. To know the fact, I should be able to invest entire Rs.1 lac in stocks.

Present bank rate is 8% which generates -4% negative actual return after inflation. I should be able to generate an actual return of 12% p.a. net of all. (That is Grossprofit - Brokerage, Taxes, Material, Risk, Efforts, Time should equal to 12% pa.). I know there are unquantiable variables in the equation. But they should be considered. For example, Time/Efforts. If you are not investing in stocks, you could use the time to do a full time job.

Cheers.

But if you are able to generate 12% returns on only the invested capital,isnt that good enough?

 

[alroyraj]

What I would like to know is,if intraday a futures contract goes into the Ban list due to market wide position list being reached, is there any chance we can enter it say if we know it has below the limit?
Can we know the live MWPL?
Another doubt is that are both equity and futures entry banned?

 

[nac]

I have a doubt on charges when future contract get exercised. STT will be higher when option contract get exercised, what about futures? Is this applicable to futures as well?
Do we get charged others charges as well? (Brokerage, Stamp duty etc..)

 

[Capricorn]

I don't see how futures can be exercised, that term is applicable only to ITM options.

STT should be charged on the settlement price on expiry day if not squared off.

 

[Capricorn]

What I would like to know is,if intraday a futures contract goes into the Ban list due to market wide position list being reached, is there any chance we can enter it say if we know it has below the limit?
Can we know the live MWPL?
Another doubt is that are both equity and futures entry banned?

Its only the fno trades that add to your position/fresh positions that are banned.

http://www.nseindia.com/content/nsccl/nsccl_foposlimits.htm

 

[nac]

I don't see how futures can be exercised, that term is applicable only to ITM options.

STT should be charged on the settlement price on expiry day if not squared off.

I don't know how to name it... so the term exercised.

Doubt is if person X didn't cover his position before expiry. We can see P/L in our ledger as we see MTM P/L. But my question do we get charged under the heads brokerage, STT, Service tax, Stamp duty, Regulatory charges, SEBI charges?

For Eg: I bought 1 lot of Oct future nifty contract @ 6000 and I didn't close my position. Now we assume that the settlement price is 6008. Here my MTM profit is Rs.400/- [(6008-6000)*50].
Whether I will get the whole Rs. 400/- in my ledger or I will get the amount after my statutory levies (Assume total of Rs. 150/-) are charged. Here my profit is Rs. 250/-.

Which one is applicable? Is STT applicable on buy side as well in case of settlement @ expiry.

 

[veluri1967]

But if you are able to generate 12% returns on only the invested capital,isnt that good enough?

I am loosing interest on idle funds. If I earn 12% on 50% of funds which actually deployed comes to 6% on total funds. Thatz because 50% of funds are idle not generating any return.

To be frank, 6% return is not worth our try in stocks.

 

[Capricorn]

I don't know how to name it... so the term exercised.

Doubt is if person X didn't cover his position before expiry. We can see P/L in our ledger as we see MTM P/L. But my question do we get charged under the heads brokerage, STT, Service tax, Stamp duty, Regulatory charges, SEBI charges?

For Eg: I bought 1 lot of Oct future nifty contract @ 6000 and I didn't close my position. Now we assume that the settlement price is 6008. Here my MTM profit is Rs.400/- [(6008-6000)*50].
Whether I will get the whole Rs. 400/- in my ledger or I will get the amount after my statutory levies (Assume total of Rs. 150/-) are charged. Here my profit is Rs. 250/-.

Which one is applicable? Is STT applicable on buy side as well in case of settlement @ expiry.

Stt should be ap. on settlement price on expiry. All positions are squared off by exchange at settlement price.