Help needed on lot sizes

Hi, i’ve been racking my brain over this for 2 days and have given up.I really hope someone here can help.
My question is fairly simple:

How do you make $1000 (clear) dollars out of 15 pips (150 points) ? With the spread being .8 and the commission rate being $7 per lot or .70cents a point.

Let me show you how i started to work this out (to make a clear $1000) before hitting a stumbling block.

To make $1000 out of 150 points you firstly have to deduct the spread as the broker gets that amount.The spread amount is .8 so 150 - 8 = 142 points. So now you only have 142 points to make the $1000.
Therefore $1000 / 142 = 7.05 You have to make 7.05 a point or $70.5 a pip.
But you will not make a clear $1000 as the broker will take out the commission.So now we have to increase the lot size to get back the commission
The commission with my broker is $7 a lot or .70 a point therefore 70.5 x .70 = $49.35 commission.
So we have to make $1049.35. to try and clear $1000. Therefore $1049.35 / 142 = 7.39 or the lot size has to be 7.39 to make $1049.35 to leave $1000 after paying the commission.
But here is the lays the dilemma and the breaking down of the arithmetic. When you increase the lot size to make to $1049 you will not clear $1000 as you’ll then be paying commission on $1049 and not $1000.
Each time you increase the lot size to make up for the commission you then have to pay more commission and so on and so on, you can never catch up therefore never make a clear $1000

Am i doing something wrong ? Should the commission be incorporated into the spread ? I’m really confused.
Look forward to hearing from anybody who may have the answer.
Regards
Greg

How do you make $1000 of a 1t pip move. Doubt your bankroll is large enough bro

15 pip, not 1 pip. I’m only on a demo and used the $1000 amount as an example only to try and explain the principle of the dilemma only.

Like most newbies, we ask the wrong questions. Ask not how to profit from a 15pip move. Rather how not to lose when the market doesn’t go your way bro. Never put the horse before the cart. When I get home from work I’ll post a formula for you.

Assume that the quote currency of the pair you are trading is the same as your account currency

(example: trading EUR/USD in a USD-denominated account)

[B]Trade x-number of UNITS[/B]

Pip-value = $10 per standard lot = $0.0001 per unit

Value of 15-pip move: (15 pips)($0.0001 per pip per unit)(x units) = ($0.0015)(x)

Cost of 0.8-pip spread: (0.8 pip)($0.0001 per pip per unit)(x units) = ($0.00008)(x)

$7 per lot commission = $0.00007 per unit commission

Cost of commission: ($0.00007 per unit)(x units) = ($0.00007)(x)

Net profit calculation:

Gross profit - transaction costs = net profit

($0.0015)(x) - ($0.00008)(x) - ($0.00007)(x) = $1,000

($0.00135)(x) = $1,000

x = 1,000 / 0.00135

[B]x = 740,741 UNITS[/B] = 7 standard lots + 4 mini-lots + 741 units of currency

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Hi Bob, the reason why I’m asking how to make a certain amount in a 15pip move is because I’m going to be using a system using Renko Bars. The Renko bars are set to 15 so the chart will only display bricks of 15 pip moves.
I’m going to use an EA (which is still in the making) that trades these 15 pip moves. When a trade is triggered we want it to make $100 net on one Renko bar move (15 pips) after transaction expenses. I said $1000 for the example because it magnifies the transaction expenses which will make it easier for me to understand once someone brings forth a formula. I look forward to seeing it once your back from work. Thanks

Clint , thanks for posting this formula on how to make $1000 net on a 15 pip move.
Its a little bit over my head I have to say.I’ll have to concentrate on it for a while to see if it can’t sink in.
At the end of your formula the amount is 740,741 (740,741 / 100,00 = 7.4) So 7.4 will be the lot amount to make $1000 net. 7.4 x 150 = $1110 So the spread and commission combined is $110 is that correct ? If there was a way for you to brake your formula into newbie language or make it simpler to understand that would be great.

G’day bro. Now BP is up and running we can go again. Do take your time to understand what Clint has posted. But I’ll go about it in a slightly different way. Instead of a nett return, I’ll express spread and commission as the cost of trading (CofT)

So the formula to calculate lot size is pretty simple

[B]a = b / (c*d)

[/B]
where [B]a [/B]= Lot size expressed as a standard lot[B] b [/B]= Risk or Return value expressed in $$$
[B] c [/B]= Pip value per lot
[B] d [/B]= Total pips

The important variance is pip value. In Clint’s example we made the assumption that the quote currency was the same as the account currency. In this case USD thus yielding a pip value ([B]c[/B]) of $10 per pip i.e. 0.0001 x 100,000 units. However I have an AUD account. The pip value on the EURUSD for my account is $13.60. Thats a 36% increase in value. I get more bang for my buck so to speak. So plug that figure into our formula and

[B]a = $1000 / (13.60*15)[/B]

My lot size for the exact same trade is only [B]4.91[/B].

Now as you rightly identified, trading cost money. People don’t appreciate this chasing such small pip movements. First the cost of spread. With the help of our algebra 101 studies the $$$ value of the spread can be express as

[B]b = acd [/B]thus

[B]b =[/B]4.9113.600.8 = $53.42

Next commission, simple enough 4.91*$7 = $34.37. Making our CofT $87.79 ($53.42+$3.37). Thats 8.8% of our profit. However it seems your not satisfied by this cost and believe its as simple as increasing lot size to compensate. So we increase the lot size by 0.43 ( a = 87.79/(13.6*15)). But as you rightly identified this would increase CofT to $95.30 (again 8.8%of profit). Still leaving us short of our nett profit target.

My point being that there is a formula out there (although I don’t care for it) for your dilemma, however nothing will change the fact that it will still cost you the same % CofT of your gross profit. So there’s no point trying to recover these cost. Accept it as a cost like any other business costs. Focus on your losses. Reducing this cost on your ledger will return more profit than trying to recover the CofT.

Thanks much for the response and formula. I’ve been staring at Clints one for a couple of days and i think i understand it now. Your one Bob which you’ve just posted I’ll also need to look at over more time. My demo account with Global prime is in USD so if you could do your calculation again in USD that would be appreciated.

Getting back to Clints one, I’ve simplified it in my mind to a point of understanding.
If either of you could tell me if my simplification is correct and will work on any amount, not just $1000

Amount of pips to make $1000 = 15 (150 points)
Spread = .8
Commission = $7 per lot or .70cents a point

150 - 15 (8 spead +7 comm) = 135
$1000 / 135 =7.40741

So the lot size to net $1000 on 150 points = 7.40741

Calculation to check if this is correct:
Gross amount made : 7.40741 x 150 = $1111.11

Commission: 74.0741 x .70 = $51.85
Spread : 8 x 7.40741 = $59.25928

Total cost of transaction: $51.85 + $59.25928 = $111.11

$1111.11 - $111.11 = $1000 USD net

So the formula is correct. This is unbelievable.
And I guess the same will apply for any amount ?
This is very handy for people trading Renko bars that want to make a certain amount per brick.

Thanks very much again.

Hello again, Greg

Yes, just change $1,000 to any amount desired, and re-do the final step in the calculation.

You might find the formula to be more intuitive, if the calculation is done in LOTS, rather than in UNITS (as in the previous post).

Here is the same trade as in the previous post (same pip-value, same spread, same commission, and same $1,000 net profit), calculated in LOTS.

We know that pips are worth $10 per LOT traded (because you are trading a pair of the form XXX/USD in a USD-account).

Therefore, a 15-pip price move is worth $150 per LOT traded.

And we know that the 0.8 pip spread is worth $8 per LOT traded.

And the commission, as before, is $7 per LOT traded.

We enter these numbers into our forumla, as follows:

Gross profit - transaction costs = net profit

Gross profit - spread cost - commission cost = net profit

($150)(X) - ($8)(X) - ($7)(X) = $1,000

($135)(X) = $1,000

X = 1,000 / 135

[B]X = 7.407407 LOTS[/B] of XXX/USD (carrying the result out to 6 decimal places).

What if you are trading a pair that does not have the USD as the quote currency?

If you are going to apply this formula to any pair in which the USD is not the quote currency (for example, USD/CAD), then you will have to calculate the appropriate pip-value, and use the appropriate spread in the formula.

Let’s run through this formula for a USD/CAD trade in which the spread is, say, 1.1 pip.

And let’s use the same commission cost of $7 per STANDARD LOT (round-turn).

As in the above example, let’s do the math in LOTS, rather than UNITS.

In this case, we can use the Pip-Value Calculator to determine that one pip is worth $7.2999 per LOT (100,000 units of USD/CAD), using the current price of 1.36988 for USD/CAD.

Therefore, a 15-pip move is worth (15)($7.2999) = $109.4985 per LOT traded, and

the 1.1 pip spread is worth (1.1)($7.2999) = $8.0299 per LOT traded.

(Note that the commission cost is always denominated in your account currency, USD, so the cost per UNIT that we used in the previous post will apply here, as well. In other words, the commission cost will always be $7.00 per LOT, regardless of the pair you are trading).

So, now we can enter these numbers into our formula:

Gross profit - transaction costs = net profit

Gross profit - spread cost - commission cost = net profit

($109.4985)(X) - ($8.0299)(X) - ($7.00)(X) = $1,000

($94.4686)(X) = $1,000

X = 1,000 / 94.4686

[B]X = 10.5855 LOTS of USD/CAD[/B]

.

Lot size is determined with your capital . Some other elements are also involved with it. With high capital and good experience you can try standard lot other wise you should trade in mini lots. Mini lots are easy to manage and involve less risk if you are not skilled in trading.

I won’t be suprtising if I advise you to start with the smallest size lot, as it is for beginners. Even if you have a larger amount for trading.