Ask Colin

If borrowed funds are used to trade, should position size be based on equity only, or total funds available to trade?

I do not use leverage, as you know, but if I did, I think that I would apply the 1% to the total funds I had to trade - equity plus borrowings. If I did not do this, and left it as 1% of equity only, it would to a large extent be negating the aim of borrowing the funds to trade bigger size. Of course, you should realise that the risk to equity is greater - as it always is if we borrow money to run any business.

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