[Development Log] Fixed Lot, Compound Interest, Risk% — Structural Differences in Fund Management Logic Compared

Although entry logic advantages tend to draw most attention, what truly determines the shape of the actual equity curve is rather the design of money management, i.e., how the lot size is decided. Even with the same entry logic, if the money management method differs, the speed of asset growth and the depth of acceptable drawdown can be completely different. This time, I would like to compare three representative methods—Fixed Lot, Compound Interest (multiplicative growth), and Risk% base—from a structural perspective. All are frequently used in practice, but there are many cases where the structural differences are not precisely understood when choosing.

1. Fixed Lot Method: Reproducibility is high, but asset efficiency does not grow

The fixed lot method trades with a constant number of lots regardless of account balance increases or decreases. Because the calculation model is simple, the reproducibility of validation results is high, and it is easy to separate parameters from other elements in optimization. When you want to verify the sole advantage of the logic in the early development phase, this method is suitable because it can exclude money management variables.

On the other hand, this method has a structural limitation. Even as assets increase, the lot size does not expand accordingly, so compound asset growth does not occur in principle. Also, when assets decrease, the lot does not shrink, so if a losing streak continues, the relative loss to the account balance keeps enlarging. If you do not recognize this asymmetry during the validation phase, you will find it hard to realize, during real operation, that asset-percent losses are progressing more than you expected in drawdown situations.

2. Compound Interest Method: Asset growth and risk compound simultaneously

The compound interest method adjusts lot size in line with the account balance. If assets rise, the lot size increases; if assets fall, the lot size decreases. It is close to applying the concept of compound growth in stock investing directly to FX lot calculation.

The strength of this method is that it can accelerate asset growth. But at the same time, this acceleration affects the risk side equally. When a losing streak begins, the reduction of lots and the occurrence of losses progress simultaneously, so the time required for asset recovery tends to be longer compared to the fixed lot method. The essential feature of this method is that asset growth and risk expansion are tied by the same function. Depending on parameter tuning, you can control the acceleration of asset growth, but if the tuning is misdone, the contraction during losing streaks can become too steep, making practical operation difficult.

3. Risk% Base Method: Design philosophy to keep loss in terms of “percentage” constant

The risk% base method fixes the amount of loss permitted per trade as a fixed percentage of account balance (e.g., 2%), and determines lot size by working backward from the price range to the stop-out line. Even when the stop-loss width differs for each entry, the lot is recalculated so that the risk amount remains constant.

A defining feature of this design philosophy is managing losses not in monetary terms but in percentages. As a result, lots automatically adjust according to asset increases or decreases, a property close to the compound method, yet the unit of risk per trade remains constantly controlled at a fixed level. It is highly compatible with strict rules in environments such as prop firms that impose daily loss limits and total loss caps. An additional characteristic not found in the other two methods is the automatic adjustment by volatility: when the distance to the stop line widens, the lot becomes smaller, and when it narrows, the lot becomes larger.

4. Structural comparison of the three methods

If we organize the three methods by their contributions to asset growth, risk behavior, and implementation/operation complexity, the following emerges. Reframing the design trade-offs of each method along the axes of simplicity, growth potential, and predictability clarifies the criteria for selection.

Contribution to asset growth
Fixed Lot remains flat, Compound Interest accelerates, Risk% Base grows with a gentle compound-like growth.

Risk behavior in losing streaks
Fixed Lot maintains constant losses (relative percentage expands), Compound Interest reduces both lots and losses but recovery tends to take longer, Risk% Base keeps loss percentage constant.

Implementation and operation complexity
Fixed Lot is the simplest; Compound Interest requires balance-linked calculations; Risk% Base requires reverse calculations from stop-loss width and risk amount, making implementation cost the highest among the three methods.

From this comparison, it becomes clear that Risk% Base is not simply superior overall, but rather a method that, at the cost of implementation complexity, earns predictability in terms of risk as a unit. Depending on the scale of the logic and the target operating environment, it can be entirely reasonable to prioritize the simplicity of Fixed Lot. Regardless of which method you choose, it is important to understand in the validation phase how your choice will affect the shape of the asset curve beforehand.

Why Semura Lab. does not neglect capital management

We at Semura Lab. treat the structure of money management logic as an object of validation on the same level as the entry logic. No matter how advantageous an entry logic is, the design of money management can make the real-world asset curve shape completely different. If validation reports only evaluate the entry logic and exclude money management design from consideration, predicting the behavior when put into actual operation becomes impossible. In this development log, we will continue to candidly record these mundane yet essential design elements.