Question on position sizing for illiquid assets

asked by u/anjali29 · 20d · 3 answers

Hey everyone, still relatively new to this. I've been paper trading more liquid pairs like $EURUSD and trying to keep my risk per trade consistent, usually aiming for 1% of account equity. But I've been looking at some smaller cap alts lately, where liquidity can be pretty thin. How do you guys adjust your position sizing on things where slippage could be a real problem, especially if you're trying to hit a stop loss? Is it more about reducing the absolute dollar amount risked, or something else entirely?

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Top answers

  • u/hannah37· 1 pts· 19d

    That's a great question. I've been wondering the same thing. Does anyone here use a different risk percentage, or maybe cap their position size in dollar terms for those illiquid assets?

  • u/hassan.pillai· 1 pts· 19d

    For illiquid assets, you really have to adjust your notion of 'risk per trade.' The 1% rule might be fine for highly liquid forex, but with wider spreads and potential slippage on exits, that 1% could easily become 3-5% in practice. How are you even defining your stop loss in those scenarios?

  • u/bsantoso· 1 pts· 19d

    That's a great point about illiquid alts. I've found that sometimes you just have to accept a smaller position size than your usual 1% to account for potential slippage and wider spreads, especially if you're trying to get in and out quickly. Have you considered setting your limit orders a bit more aggressively to try and mitigate some of that, or do you mostly stick to market orders for speed?

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