Gold trading basics · Lesson 88 of 100

Gold System Sizing: Reserve Risk and Check Whether a Trade Is Feasible

Integrate stop distance, execution allowances, fees, quantity grids and remaining aggregate capacity into a single sizing decision.

Size Must Fit Both Budgets: instructional diagram for lesson 88 — CYGURU GOLD · Original lesson schematic. Examples are illustrative.

Feasibility comes before a preferred ticket size

A system should not begin with the quantity the operator wants and adjust the stop until the trade fits. First define the invalidation distance and cost convention, then calculate the quantity supported by the available planning budget. Existing working orders can consume capacity even before their final fills are known. Reserve their intended risk according to a documented policy so two simultaneous decisions cannot both spend the same unused budget. A risk reservation is an internal estimate, while actual broker exposure still requires its own reconciliation.

Set up a linear hypothetical instrument

Assume a long paper entry reference of USD 2,000 per ounce and stop trigger of 1,990. The ten-dollar price distance is not a maximum realized loss. Add an illustrative adverse-execution allowance of USD 1 per ounce and proportional round-trip fees of USD 0.20 per ounce, neither already embedded elsewhere. Estimated loss per ounce is 10+1+0.20=USD 11.20. Use direct ounces for this exercise and suppose the instrument allows only whole-ounce increments. A different broker specification would require different conversion and grid calculations.

Calculate size against both ticket and portfolio constraints

With a USD 50 per-ticket planning budget, the unrounded quantity is 50/11.20=4.4643 ounces. Rounding down to four ounces gives estimated loss USD 44.80; five ounces would require USD 56. An aggregate ceiling of USD 80 with USD 40 already reserved leaves only USD 40. The operative budget is then the smaller of USD 50 and USD 40. Three ounces require USD 33.60, while four would exceed remaining capacity. The correct quantity changes because capacity is shared, even though the setup and stop have not changed.

Feasible size worksheet
Constraint	Budget USD	Whole ounces	Estimated risk USD
Ticket only	50	4	44.80
Aggregate capacity	40	3	33.60
Rejected four with capacity 40	40	4	44.80
Rejected five with ticket 50	50	5	56.00

Ten-dollar distance plus one-dollar execution allowance plus USD 0.20 fees per ounce.

Make rejection a valid engine output

If the minimum permitted quantity requires more than the remaining budget, the feasible quantity is zero and the system blocks the trade. Avoid rounding up because a signal seems unusually convincing. Also reject inconsistent directions, missing fee specifications, invalid price grids and nonpositive equity rather than producing a plausible number from incomplete inputs. If commissions contain fixed minima or tiers, the proportional example no longer describes them accurately. Solve the actual cost function on the permitted quantity grid and retain the rejected candidate sizes for an auditable explanation.

Keep stress and liquidity outside the comfort of the estimate

An allowance makes a planning estimate more explicit; it does not cap a gap or guarantee available depth. Record a separate stress scenario and determine whether collateral or cash access would remain adequate. Margin requirements and stop-based estimates answer different questions. A small estimated stop loss can coexist with large notional exposure and substantial funding pressure. If changing conditions make the original assumptions invalid before submission, recalculate or block according to the charter instead of preserving a stale quantity because it was approved several minutes earlier.

Workshop deliverable: a reservation worksheet

Produce the unconstrained four-ounce result and the capacity-constrained three-ounce result, with every input and unit visible. Add a second simultaneous intention and specify which reservation is accepted first. Document how confirmed cancellation or closure releases capacity and how uncertain order state prevents premature release. Compare the paper estimate with realized fills afterward without changing the original budget record. This is the bridge between a position-size formula and a functioning system: every accepted quantity must fit both its own assumptions and the commitments already made elsewhere.

Gold System Sizing: Reserve Risk and Check Whether a Trade Is Feasible

Feasibility comes before a preferred ticket size

Set up a linear hypothetical instrument

Calculate size against both ticket and portfolio constraints

Make rejection a valid engine output

Keep stress and liquidity outside the comfort of the estimate

Workshop deliverable: a reservation worksheet

Can you apply the idea?

Make this lesson part of your process.

Gold Trading Mastery

Continue the beginner course

Lesson sources and further study

Core course references

Connected reading