The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

Question 14—Modifying the 2% Rule

Answer 2 4,500

As a rule, the larger the account, the lower the percentage a trader will risk on any single trade. The maximum for him is the same as for everyone else—2%; still, he may go up to that absolute limit only when he sees an exceptional opportunity. At other times he is likely to limit his risk to well below 1%. For a trader with a $2,000,000 account, a quarter percent comes to $5,000—quite a bit to bet on a single trade. Risking $1 per share means a theoretical maximum size of 5,000 shares. In practice, the size has to be reduced, to pay commissions and to cover possible slippage.