Fixed ratio sizing - GetProfitable

Fixed ratio sizing, popularised in futures trading, adds a contract each time the account gains a set amount called the delta - but the amount required grows with each unit already on.

With a delta of $5,000: go from one contract to two after $5,000 of profit, two to three after a further $10,000, three to four after another $15,000. The Nth unit requires N-1 deltas of new profit, so total profit needed for N units is delta x N x (N-1) / 2. Reaching five contracts needs $50,000 of gains.

Compared with fixed-fractional-sizing, it is more aggressive for small accounts (a $10,000 account can reach two contracts quickly) and more conservative for large ones, where growth becomes almost linear. That aggression at the bottom is exactly where an account is least able to absorb a bad run, so a small delta is a fast way to a large drawdown.

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Working out a position size. Three numbers decide how big a trade is: the account, the share of it put at risk, and the distance from entry to stop. One percent of $25,000 is a $250 budget, and a $0.50 stop divides into that 500 times.

Delta across the range of prices. Delta says how much a call's price moves for a one-point move in the stock. Far below the strike it is near 0 and the option barely reacts; at the strike it is about 0.50; far above it approaches 1 and tracks the stock.