Portfolio Management Formulas Mathematical Trading Methods For The Futures Options And Stock Markets Author Ralph Vince Nov 1990 May 2026

Raw Optimal ( f ) often tells a trader to risk 20%, 30%, or even 50% of their capital on a single trade. While mathematically optimal for logarithmic utility , this leads to massive drawdowns (sometimes 70% or more) before hitting the exponential growth curve.

Vince’s formulas force the trader to optimize for the . He argues that a system with a lower arithmetic average but less variance will make you richer over 100 trades than a system with a high arithmetic average and high variance. 3. The Risk of Ruin (Exact Calculations) Prior to Vince, "Risk of Ruin" was a vague concept. Analysts used simple formulas: "If you risk 2% per trade, you have a 0.5% chance of ruin." Vince laughed at this. Raw Optimal ( f ) often tells a

The formula is terrifyingly sensitive: [ f = \frac{(\text{Average Trade Profit})}{(\text{Worst Loss})} \times \text{Probability Adjustments} ] He argues that a system with a lower

Vince generalized this into the "Optimal ( f )." He provided a formula to calculate exactly how much of your account to risk on a single trade to maximize the geometric growth of your capital. Analysts used simple formulas: "If you risk 2%