Chapter 1  How to Calculate Forex Position Size

How to Calculate Forex Position Size-Pic no.1

A crucial element of trading success is taking the proper position size on each trade. Position size is how many lots (micro, mini or standard) you trade in the forex market.

Position sizing is setting the correct amount of units to buy or sell a currency pair. It is one of the most crucial skills in a forex trader’s skill set. Position sizing can make or break a trader; too risk adverse and the account won’t grow, take positions that are too large and the forex market can wipe out an entire account in one big move.

Determine forex position size in 5 steps:

1. Account equity or balance

2. Currency pair you are trading

3. Determine how much of your account you want to risk on each trade, in a percent.

It’s recommended traders don’t risk more than 1% of their account per trade, or 2- 3% maximum.

4. Determine the pip risk on the trade you are considering. The pip risk is the

difference between your entry price and your stop loss order price.

5. Determine your ideal position size using the above data. Use the formula:

$ at Risk / (Pip Risk x Pip Value) = Position size in lots

In the following examples, we’ll show you how to calculate your position size based on your account size and risk comfort level.

If your account denomination is the same as the counter currency

The ideal position size can be calculated using the formula:

Lots traded = Amount at risk/(Pips at risk x pip value)

where the position size is the number of lots traded.

Let’s assume you have a $10,000 account and you risk 1% of your account on each trade. Your amount at risk is $100.

You’re trading the EUR/USD pair, and you decide you want to buy at 1.3051 and place a stop loss at 1.3041. That means you’re putting 10 pips at risk.

You’ve been trading in mini lots, so each pip movement has a value of $1. (If you’re trading a currency pair in which the U.S. dollar is the second currency, called the quote currency, and your trading account is funded

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