Understanding Position Sizing in Commodity Futures

When trading commodities, particularly futures, understanding position sizing isn't just a suggestion, it's foundational risk management. Unlike equities where you might buy 100 shares of $AMD at 509.71, a single commodity future contract represents a much larger notional value. For example, a WTI crude oil futures contract represents 1,000 barrels. A $1 move in crude is a $1,000 P&L swing per contract. If you're risking 2% of your capital per trade, you must calculate how many contracts that allows given your stop-loss distance. Mismanaging this leads to outsized losses, regardless of your directional accuracy. It's the primary difference between a string of small losses and a single account-ending blow-up. It's a mechanical, not a psychological, aspect of trading.