Buying Power Allocation Explained

Buying Power Allocation is a key feature of the Options Auto Trader platform that helps you control the amount of money your bot can use when trading. This allocation serves as a crucial risk management tool, ensuring that you don't over-leverage your account or expose yourself to more risk than you're comfortable with. This article will explain what buying power allocation is, why it's important, and how to set it up.

Step 1: What Is Buying Power Allocation?

Buying power allocation is the amount of money you allow your auto trader bot to use when placing trades. This allocation acts as a cap, meaning the bot will never exceed this amount of capital, which helps manage and limit your risk. Without proper allocation, the bot could use too much of your account’s buying power, potentially putting more money at risk than you intend.

Step 2: Why Is Buying Power Allocation Required?

When creating an auto trader, you are required to set a buying power allocation. This is the number one way that we limit risk for users. Since this allocation defines the maximum amount of your capital the bot can trade with, it ensures that you stay within your risk tolerance and avoid overexposure in the market.

For example, if you allocate $5,000 of buying power, the bot will only trade with that amount, regardless of how much is available in your account. This gives you control and peace of mind, knowing the bot will never use more than what you’ve allocated.

Step 3: Setting a Fixed Number for Buying Power Allocation

You can set a specific dollar amount for your buying power allocation when creating your auto trader. This means you can decide exactly how much of your account’s funds you want the bot to use.

To set a fixed number:

1. In the Auto Trader Settings during the creation or editing of a bot, locate the Buying Power Allocation field.
2. Enter the amount of money you want to allocate for the bot to use in dollars (e.g., $5,000).
3. Save the settings.

With this approach, the bot will not use more than the dollar amount you’ve specified, regardless of how much buying power is available in your account.

Step 4: Using a Percentage of Account Size for Buying Power Allocation

Instead of allocating a fixed dollar amount, you can also allocate a percentage of your account size to be used for trading. This dynamic approach adjusts the bot’s buying power allocation as your account balance changes, providing flexibility based on the size of your account.

To allocate a percentage:

1. In the Auto Trader Settings, select the option to allocate a percentage.
2. Enter the percentage of your account size you want to allocate (e.g., 20%).
3. Save the settings.

For example, if you set your buying power allocation to 20% and your account balance is $50,000, the bot will be able to trade with $10,000. If your account size increases or decreases, the allocated amount will automatically adjust to reflect 20% of your new balance.

Step 5: Adjusting Your Buying Power Allocation

If you want to adjust the buying power allocation for an existing bot:

1. Go to the Auto Trader page and click the gear icon next to the bot you want to edit.
2. Modify the buying power allocation by entering a new fixed dollar amount or percentage.
3. Save the changes.

It’s important to review and adjust your buying power allocation periodically, especially if your trading strategy changes or if you want to trade with more or less capital.

Step 6: Buying Power Allocation for Risk Management

Since buying power allocation is directly tied to risk management, it's important to carefully consider how much you want to allocate for trading. A lower allocation reduces your risk but also limits your potential profits, while a higher allocation increases both risk and reward.

Conclusion

Buying Power Allocation is an essential tool for managing your risk when using the Options Auto Trader. Whether you choose a fixed dollar amount or a percentage of your account size, setting the right allocation ensures that your bot only trades with the amount you’re comfortable risking. If you have any questions or need help with setting up your buying power allocation, feel free to contact our support team.