Fixed fractional position sizing
A way of sizing a trade so that the loss, if the protective order triggers, is the same share of capital whichever security is being traded.
Formula
C is capital, f the permitted share of loss on one trade, and the denominator the distance to the protective order. The result is rounded down to whole lots.
How to read the number
It automatically makes positions smaller in securities with a wide price range and larger in quiet ones, equalising risk instead of amounts invested.
When the metric lies
Also known as: fixed risk per trade