The reason why I trade futures only is because I know the max loss I will have. For instance, if I trade the micro dow and let us say, hypothetically, the micro dow price is 30,000. Every tick is worth $0.50, then technically if I just bought 1 contract going long my max loss would be (0.50 * 30,000 = $15,000 + Margin + trade fees). I will most likely not go to $0.00 balance because the futures most likely will not go to zero. If the micro dow did go to zero, there would be a bigger problem to face.
So, what is my point? My point is, knowing statistically the stoploss is crucial. Another example. Let us say hypothetically, the micro dow is at 30,000. What are the odds of the micro dow decreasing by 50 percent? Depending on one’s calculation they could have an account with $7500.00 + Margin+ Trade fees, and take a 1 contract long position, if one thought the odds of the micro dow not decreasing by 50 percent was statistically in their favor. Hence, one could hold their position and over time hopefully be profitable.
Con 1: Now, let us say, hypothetically, the dow decreased by 40% but did not go to 50% and stop your position out; the con is, you are in a losing trade and will have to wait for the market to increase in order to avoid the loss and the time for the increase could be a long time. Thus, during the waiting period your money is not “working” for you; aka, stagnation.
Con 2: Using the situation as Con 1 above, if the market did go down 40% more than likely unemployment would increase. Thus, one might have to close their account and take the loss because of finical hardship.
The Take Away.
By knowing the max loss, the stoploss is easier to calculate and depending on one’s financial position to take such risk one could use it in their trading strategy.