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Forex Position Management #2 - How to Calculate Position Size

To keep th cashback forexgs simple forexcashbackprofitcalculator easy to understand, as always, we will give examples of everything Th cashback forex profit calculator is newbie Zhang San A long time ago, he was an even more youthful newbie than he is now He lost his entire cashbackforexpipcalculator because he was using a huge position cashbackforexprofitcalculator He was like a cowboy from the Midwest who didnt trade with his head and traded on a large scale Zhang San didnt fully understand the importance of position size Now hes back on the course and making sure he fully understands the content Dont let what happened to him happen to you again! In the following example, we will show you how to calculate the size of your position based on your account size and the appropriate level of risk Your position size also depends on whether your account is in the base currency or the quote currency Account currency is the relative currency Newbie Zhang San deposited $5,000 into his trading account and he is ready to start trading again Suppose he is using the swing trading system used to trade EUR/USD Since losing his first account, he vows not to risk more than 1% of his account per trade. Lets calculate what his position size should be in his risk-appropriate zone. USD Next, we divide the amount at risk by the stop loss to arrive at a value per pip of $50/200 pips = $0.25/pips Finally, multiply the value per pip by the known unit/pip value ratio of EUR/USD In this example, 10,000 units (or one mini lot), the value per pip change is $1 $0.25/pips * [(10,000 units EUR/USD)/($1/pips)] = 2500 Unit EUR/USD So, newbie Zhang San should trade 2500 units of EUR/USD or less in order to be at the right risk level with the existing account settings is simple huh? But what if your account is in the base currency? Lets assume that Zhang San is staying in the Eurozone and decides to trade Forex through a local broker with a total account size of €5,000 using the previous example (trading EUR/USD with a stop loss set at 200 pips). Now we have to convert it to dollars, because currency pairs are denominated in relative currencies assuming the existing exchange rate of 1 euro to 1.5000 dollars (euro / dollar = 1.5000) we have arrived at the value of the conversion to dollars, we have to convert the existing exchange rate of euro / dollar, and then multiply the total amount of euros we are willing to risk (1.5000 dollars / 1.0000 euros) * 50 euros = about 75 USD Next, divide the risk in USD by the stop loss points ($75)/( 200 points) = $0.375/point This gives the value per point with the stop loss set at 200 points, within the appropriate risk ratio for Zhang San Finally, multiply the value per point by the known unit/point value ratio: ($0.375/point)*[ (10,000 units of EUR/USD)/ ($1/pip)] = 3750 units EUR/USD So, taking a risk of 50 euros or less and setting a stop loss of 200 pips to trade EUR/USD, Zhang Sans position size cant exceed 3750 units still pretty simple, huh? Now it gets a little more complicated dont worry well explain everything and make it as easy as baking a cake