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LIby u/liammoreau·6dQuestion

New here, question about position sizing for illiquid assets

Hey all, just joined up. Been trying to get my head around proper position sizing, especially for less liquid stuff. I get the whole R-multiple thing and risking a fixed percentage of capital per trade, but how do you realistically manage that when you're looking at something like a micro-cap with a huge spread or even some of these newer tokenized assets? Sometimes a 1% stop loss on paper is just impossible to fill without blowing through it and then some. Do you just size down drastically, or is there another way to think about the 'effective' risk when liquidity is a major factor? It feels like the standard formulas don't quite cut it there.

4 comments · 2 points

4 Comments

MFu/marcus_fxUnited Kingdom·6d

This is a really good question, and something I've been wondering about myself. It seems like the standard advice just doesn't quite fit when you can't even get out of a position at your theoretical stop loss. How do you even account for that slippage or lack of depth in your initial risk calculation?

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LOu/larissa.oliveira·6d

That's a classic problem. For illiquid assets, the bid-ask spread itself can make a traditional stop-loss almost impossible to execute without significant slippage. Many resort to mental stops or a much wider percentage.

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SKu/sneha_khan·6d

That's a great question, and it highlights a common challenge. For illiquid assets, the bid-ask spread itself can make a traditional percentage-based stop loss very difficult, sometimes even impossible to execute without significant slippage. Have you considered adjusting your risk calculation to account for the spread's impact on your effective entry and exit points, rather than just the last traded price?

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MDu/mariam.demir·6d

This is a great question. For illiquid assets, the practical execution of a fixed percentage risk per trade gets really tricky. You often have to adjust your R-multiple calculations to account for slippage or use much wider mental stops, effectively reducing your position size compared to what a technical 1% stop might suggest.

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