Stock Market and Risk Management System

Recently, I had a task to make some calculator that would, with a given risk value for the deal, calculate the necessary trading lot for trading in futures on the stock market. The task has been set, and it is needed to seek its solution.

The first thing I, of course, went to the Internet in search of information on this issue. Moreover, here he was very much surprised, discovering that this information is so specific that it is practically wholly absent from the network.

Having looked through an incredible number of different sites, where he read about the calculation of a lot in the Forex market, I realized that he would have to do it himself. Below, in steps, it will show an algorithm for simple actions that allows you to calculate the trading lot for FORTS futures correctly.

However, before we move on, he details the task, so that it becomes clearer why we need it.

You have all heard about this concept as a “risk management system” (or “money management system”) and probably heard about the “fixed interest method.” This method is that when opening a transaction, we risk not the entire amount of the deposit, but only a part, some small percentage. Most often this is 1-2% (“1% rule”).

So, now our task is to calculate the necessary trading lot for the transaction, but not based on the entire amount of the deposit, but only on the percentage of the sediment that we will indicate.

First of all, you need to get theoretical knowledge about the exchange trade and understand whether you need it? It is necessary to know how the exchange trade is organized in our country. In addition to stock exchanges, brokers and traders, regulators, self-regulating organizations, registrars, depositories, clearing organizations and clearing centers, clearing houses and depositories are among the players in the stock market not only in the US but also in any country.

Further, one should familiarize with such a phenomenon as a trading terminal. After the trader entered the purchase or sale application with the help of the terminal, before entering the exchange, it comes to the trading system of the broker. Such systems are equipped with authorization and limitation tools that allow you to route the application to the market, and also give the client information about its status and the current state of its portfolio. At the same time, it is essential to know that most of the applications on modern exchanges are generated by robots, for which brokerage systems have an API for connection.

Trading robots can make hundreds and thousands of applications within seconds, so the most important thing for them is speed. That is why the work on the scheme “user (robot) – brokerage system – the core of the exchange” cannot satisfy all traders – because there is an extra link in the form of a brokerage system. That is why there was a technology that allows optimizing this chain as much as possible – direct access to the exchange.

After gaining theoretical skills and learning more about technologies, many traders go straight to trading – and lose money. Moving gradually is necessary. It was for such a smooth “working out” in the specifics of the stock market and the habituation to the chosen means of trading that a test or virtual exchange trade was invented.