Complete Guide to Position Sizing & Risk Management in MTF trading

After my note on growing a small account, I’ve received many questions on risk management and position sizing in MTF trading. So, here’s how I approach it.

The first thing to understand is that there are two ways margin is provided:

• Margin provided on a stock-by-stock basis
• Margin provided at the portfolio level

The first approach is the most common and widely used in India, while the second is less accessible.

Here, we’ll primarily focus on the first one, as that’s what most traders use.

Most people ask how to think about position sizing when using margin. The key point is this: I don’t include the leverage amount in my base capital while calculating position size.

This is a core principle at TradeTM where we emphasize that position sizing must always be based on your actual portfolio risk, not the leveraged amount.

For me, MTF only funds the capital requirement, not the risk. The position size remains the same whether I use cash or MTF.

Understand it this way:

• Portfolio Value: ₹10L
• Portfolio Risk: 0.5% = ₹5,000
• Entry: ₹100
• Stop Loss: ₹98

Position size = 5000 ÷ (100 − 98) = 2,500 shares

Total position value = ₹2.5L (25% of portfolio)

Now comes the MTF part:

If I get 5× leverage, I only need to block ₹50K to take a ₹2.5L position.

So:

• Risk is still calculated on ₹10L
• MTF is only funding the capital, not changing the risk

In the given example, this allows me to deploy more positions beyond the ₹10L limit while keeping risk controlled.

Key Points:

• Always calculate position size on base capital, not leveraged capital
• Use MTF from the start, not after your portfolio is already allocated
• Risk remains the same whether you use cash or MTF. The only real difference is the interest cost

Used this way, leverage doesn’t increase risk arbitrarily — it simply improves capital efficiency.

As I prefer taking larger position sizes, around 30–45%, it doesn’t take long to deploy the entire portfolio, even with leverage. Just 4–5 positions can take me close to ~200% exposure.

However, the key variable to control is Open Risk.

If you initiate too many positions at once without allowing earlier trades to become risk-free, your open risk spikes. In such cases, even a minor market pullback can trigger multiple stop losses together, leading to a significant portfolio drawdown.

This risk is even higher when using tight SLs.

To manage this:

• I avoid initiating more than 3–4 positions at a time (especially in velocity or hybrid trades with tight SLs)
• My typical risk per trade is ~0.65%, so maximum open risk stays around 2–2.5% at any given time

As trades move in my favor and become risk-free, I free up room to add new positions.

Even at a broader portfolio level (including magnitude setups), I ensure that total open risk never exceeds ~4–5%.

From experience, whenever open risk hits that upper limit, it usually signals a market where setups are triggering but not following through. Trades fail to become risk-free and instead hit SLs, causing compounding losses.

If you manage open risk well, MTF becomes a powerful tool for capital efficiency without increasing actual risk. The key is discipline in execution, not just access to leverage.

Follow this framework, and you can use leverage to enhance returns without exposing yourself to unnecessary downside.

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