This option lets
you scale position sizes based on changes to the overall Capital.
You specify a percentage of available Capital that each position
should take. This strategy allows for a geometric growth of
capital because the size of your position grows in relation
to the equity growth in your account. If you would like to
trade more aggressively, you should increase the % of Capital
to invest. The larger the percentage, the more potential profit
as well as potential risk. More conservative investors may
choose a smaller % of Capital.
Formula:
Number_of_shares = (Current_Capital * %_of_Capital /
Margin) / Security_Price
Examples:
1. % of Capital - 20%
Margin Requirements % - 100%
Security Price - 20$
Current Capital - 25000$
In this case you can buy (25000 * 0.2 / 1) / 20 = 250 shares
2. % of Capital - 20%
Margin Requirements % - 25%
Security Price - 20$
Current Capital - 25000$
In this case you can buy (25000 * 0.2 / 0.25) / 20 = 1000
shares
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