For Business

Risk & Money Management

What Is Fixed Ratio Position Sizing

Fixed ratio position sizing grows the size one step at a time, and each step costs one more delta of profit than the step before, so the size follows the profit made since the rule began rather than the balance. This paper shows you the rule with a delta of 500 dollars, from 0.10 lot to 0.20 at 500 dollars of profit, 0.30 at 1,500, 0.40 at 3,000 and 0.50 at 5,000; the idea as a pyramid of cannonballs where every layer needs one more ball; the road with its spreading milestones; the lift that goes down by the same floors when profit is given back; and the History tab's Profit total, the number the rule reads on your platform.

Difficulty
Beginner
Reading time
5 min
Pages
8
Reviewed by
Saman Rahbar

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The ladder of profit

Fixed ratio position sizing grows the size in steps, and each step costs more profit than the one before. One number is chosen, the delta — 500 dollars here, an example — and the size starts at 0.10 lot. The first extra step, to 0.20, needs 500 dollars of profit. The second, to 0.30, needs two deltas more, so it arrives at 1,500. The third needs three more, at 3,000; the fourth four more, at 5,000. The rule looks at the profit made since it began, not at the balance, and it counts the steps already taken to decide what the next one costs.

A pyramid of cannonballs

Picture a pyramid of cannonballs. Each new layer needs one more ball than the layer before: one, then two, then three, then four. Fixed ratio sizing builds the size that way. A ball is one delta of profit, 500 dollars here, and the size is the number of layers. The first step costs one ball, the second two, the third three, so the total climbs 500, 1,500, 3,000, 5,000. That is the ratio in the name: the profit needed for each step is fixed in proportion to the steps already taken. The pyramid never asks how big the account is. It only counts balls.

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