Capital Allocation: How Much to Risk Across Multiple Positions
Running multiple positions? Learn how to allocate capital without overexposing your account to a single direction. How much per market and per strategy — the.
The Problem with Naive Allocation
If you open 5 trades risking 1% each, you risk 5% total. But if those trades are correlated (all long USD), you're actually risking much more — a single USD reversal could hit all 5 simultaneously. Capital allocation must account for correlation.
Practical Allocation Rules
- Total portfolio risk: Never exceed 5% of account across all open positions
- Per-instrument risk: Maximum 2% on any single instrument
- Per-direction risk: Maximum 3% on longs and 3% on shorts
- Correlated groups: Treat correlated instruments as one position for risk purposes
Dynamic Allocation
(1) Calculate total risk before opening each new position. (2) If adding a new trade would push total risk above 5%, either reduce the size or wait for an existing trade to close. (3) Review correlation between new and existing positions. (4) After profits, you can scale up; after losses, scale down.
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70-80% of retail investor accounts lose money when trading CFDs. Backtesting does not guarantee future results. Always consider whether you can afford the potential loss of your capital.