Futures position sizing

Options & Futures
1

Hi all,



I was hoping to get some assistance and see what is most commonly used in the market when it comes to position sizing in strategies as Butterfly in STIR Futures or Cash and Carry strategies.



Volatility asjusted sizing probably still is the way to go, but what portion of balance would be willing to risk in that case?



Thanks

2

Hi Vlad,



Although there is no straight answer to this question as it depends on lots of factors such as asset class, risk appetite, choice of martingale or anti-martingale strategy and the trading strategy, I can mention a couple of popular position sizing techniques employed by quant traders. 

  1. Fixed Dollar Amount & Fixed Percentage Risk: In this technique, obviously you are pre-determining a fixed amount per trade or fixed percentage of your capital to use per trade for position sizing (again depends on trading strategy, how many trades are produced, your risk appetite etc.).
  2. Volatility Based: As you mentioned, this is also very popular. In this position sizing technique, you are adjusting the position size based on the volatility of the asset - as the volatility increases, decreasing the position size or vice versa.
  3. Kelly Criterion: Deciding position size based on the winning probability and the win/loss ratio.
  4. Deciding based on technical indicators such as ATR.
I also suggest this Position Sizing in Trading course to have in depth knowledge on above techniques as well as their implementations.

Hope this helps.