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How To Enter Your CFD And Spread Trade
With The 2% Rule
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This is
vital.
Print or save this email as a consistent guide for your trading.
Every time you take a trade, you’ll need to know how much money you’d
like to risk.
Most professional traders in this world and myself follow a similar
money management principle, which you can adopt today.
I call it…
The 2% Trading
Risk Rule
The rule is very easy to understand.
Whether you trade using CFDs or Spread Betting, the rule is the
same.
Never risk more than 2% of your portfolio on any one trade.
It’s one rule that you can use whether you have a R1,000 account or a
R10,000,000 account.
You see, trading is a forever business.
This means, as a trader you should risk as little of your portfolio as
possible in order to stay in the game longer.
We’ll now go straight into how you to enter your CFDs and Spread
Betting trades using the 2% rule.
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How to enter your CFD trade using the 2% Rule
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Here are
the specifics for the trade
CFD of the
underlying Company: TIM Ltd CFDs
Portfolio value: R100,000
2% Max risk per
CFD trade: R2,000
Entry price: R400.00
Stop loss price: R380.00
To calculate the no. of CFDs you’ll buy per trade, you’ll need the:
~ Max risk per trade
~ Entry Price and
~ Stop loss price
Next, you’ll need to follow two steps:
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Step #1:
Calculate the risk in trade
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The
‘risk in trade’ is the price difference between where you enter and
where your stop loss is:
Risk in trade = (Entry price – Stop loss price)
= (R400 – R380)
= R20
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Step #2:
Calculate the no. of CFDs to buy
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No. of
CFDs to buy = (2% Risk ÷ Risk in trade)
= (R2,000 ÷ R20)
= 100 CFDs
In your platform you’ll type in 100 TIM CFDs to buy, place your entry
price at R400 and your stop loss price at R380 to risk only 2% of your
portfolio.
Note: 1 CFD
= 1 Share exposure
100 CFDs = 100 Shares exposure
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How to enter your Spread Trade using the 2% Rule
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With
spread trading you trade on a ‘value per 1 point’ basis.
You’ll choose either: R0.01, R0.10, R1 or any other amount per 1 cent
movement in the underlying market.
If you choose R0.10 value per 1 cent movement, for every 10 cents the
market moves against or for you, you’ll lose or gain 100 cents (10
cents value per point X 10 cents movement).
Here are the specifics for the spread trade.
Contract of the
underlying Company: TIM Ltd
Portfolio value:
R100,000
2% Max risk per
Spread trade: 200,000c (R2,000)
Entry price: 40,000c (R400.00)
Stop loss price: 38,000c (R380.00)
To calculate the ‘Value Per Point’ to enter your long (buy) trade,
you’ll need the:
~ Max risk per trade
~ Entry Price
~ Stop loss price
Next, you’ll need to follow two steps:
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Step #1:
Calculate the risk in trade
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Risk in trade = (Entry price – Stop loss price)
= (40,000c – R38,000c)
= 2,000c (R20.00)
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Step #2:
Value per 1 cent movement
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Value per 1 cent movement = (2% Risk ÷
Risk in trade)
= (200,000c ÷ 2,000c)
= 100c (R1.00)
This means, with a ‘Value per point of 100c’ every 1 cent the TIM Ltd
share price moves, you’ll make or lose 100 cents.
Every 2,000c the market moves, you’ll make or lose 200,000c or R2,000
of your portfolio (100c Value per 1 cent movement X 2,000c movement).
Note: 1 Cent per 1 cent movement = 1 Share
exposure
100 Cents per 1 cent movement = 100 Shares
exposure
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Heads up for your free calculator on Wednesday
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On Wednesday I’ll be sending you a
FREE a 2% Risk Trading CFD and Spread Trading calculator you can use,
for every time you take a trade.
Make sure you save us to your address book to avoid missing out on this
important email…
Let me know if you found this article helpful by emailing Timon@TimonAndMATI.com
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