Calculating complex position sizes

[JacquesJoubert]

Hey Guys
I’m new to forex and I’m trying to manually calculate a position size on AUD/JPY

My account denomination is USD
Account balance = $3000
Stop loss = 200 pips

Please can someone help me through a step by step process. I read the baby pips curriculum but it didn’t give an example where my account denomination wasn’t in the conversion currency base currency.

Please HELP!

[dudest]

Hey Guys
I’m new to forex and I’m trying to manually calculate a position size on AUD/JPY

My account denomination is USD
Account balance = $3000
Stop loss = 200 pips

Please can someone help me through a step by step process. I read the baby pips curriculum but it didn’t give an example where my account denomination wasn’t in the conversion currency base currency.

Please HELP!

Maybe you can try this Position Size Calculator: Free Online Forex Position Sizing Calculator and figure out the math from the result...

Cheers

[rhodytrader]

Without knowing the $ amount you want to risk you can't come up with a position size.

[Clint]

Please can someone help me through a step by step process.

If you're asking for the logic behind the calculation, here it is, in brief:

As rhodytrader pointed out, you have to specify the amount (in dollars, or as a percentage of your account) that you are willing to risk on this trade. Let's say that you are willing to risk 2% of your account balance. That equates to $60 of risk.

What this means is: If your trade goes bad, and your 200-pip stop-loss is hit, the resulting loss will be $60. From this, we calculate that each pip will earn you, or cost you, $0.30 (that is, $60 ÷ 200 pips = $0.30 per pip) --- based on some still-to-be-determined position size.

In order to determine the position size (in lots, or units of base currency) such that 200 pips = $60, you have to know the dollar-value of one pip per lot traded, or per unit traded.

In the case of this trade, the question is: How much is one pip of AUD/JPY worth in U.S. dollars?

There are various ways to find the AUD/JPY pip-value, expressed in USD. A few minutes ago, the ASK price of the AUD/JPY was ¥81.004, and the BID price of the USD/JPY was ¥79.424.

I entered that info into the Babypips Pip-Value Calculator, and got: 1 pip = $0.1259 per micro-lot of position size.

Using this result, we can calculate:

Position size = $0.30 per pip (for the entire position) ÷ $0.1259 per pip (per micro-lot) = 2.3828 micro-lots

If you have a micro account, you probably can't trade in fractions of a micro-lot. So, you have to choose between trading 2 micro-lots, or 3 micro-lots.

In order to stay within your 2% risk limit, you would choose to trade 2 micro-lots of AUD/JPY.

If you have an account which allows you to trade position sizes in UNITS, such as the account offered by Oanda, then you would trade 2,383 UNITS of AUD/JPY.

If you followed all that, up to this point, then you now know what Position Size Calculators are doing when they calculate a position size for you.




Let's compare the result obtained, above, with the result obtained using the Babypips Position Size Calculator.

You would enter the following information into the Position Size Calculator:

• Account currency: USD

• Account balance: 3000 (without the $ sign, and without the comma)

• Risk percentage: 2 (or whatever risk percentage you choose for your trade)

• Stop loss in pips: 200

• Currency pair: AUD/JPY

• Price for USD/JPY: 79.424 (or whatever the current price happened to be at the time of your trade)

Then, you hit Calculate, and you get the result: 2,383 units, or 2 micro-lots.

[JacquesJoubert]

Thank you Gentleman but how do I calculate the position size manually, without the pip size calculator?

Assume these variables:
Account currency: USD

• Account balance: 3000
• Risk percentage: 2% or $60
• Stop loss in pips: 200
• Currency pair: AUD/JPY
• Price for USD/JPY: 79.424

Its that pips value im strugle with.

[Dominator4fx]

Thank you Gentleman but how do I calculate the position size manually, without the pip size calculator?

Assume these variables:
Account currency: USD

• Account balance: 3000
• Risk percentage: 2% or $60
• Stop loss in pips: 200
• Currency pair: AUD/JPY
• Price for USD/JPY: 79.42

Its that pips value im strugle with.

How to get PIP size Manually

Balance = 3000USD
Leverage = 1:500
Traded Pair = AUDJPY

You will need 100,000 units of AUD to deal in AUDJPY

1 lot = 100,000 units

Now Amount required for trade = 100,000 / 500 = 200 AUD

Taking AUDUSD = 1.0200

1 AUD = 1.02 USD

200 AUD = 200 x 1.02 = 204 USD required to open 1 lot of AUDJPY

AUDJPY: 81.04

The formula for calculating a pip value is :

(one pip, with proper decimal placement/currency exchange rate) x (Notional Amount)

Value per PIP in AUD= (.01/81.04) x 100,000AUD = 12.3396AUD

Value per PIP in USD = 12.3396 x 1.02 = 12.586$

Note:
Notional Amount= is 100,000 units of the First currency in the traded pair.

1 pip is:

for currency pairs with 5 places after the decimal point - the minimum change in the 4th place after the decimal point (0.0001);
for currency pairs with 3 places after the decimal point - the minimum change in the 2nd place after the decimal point (0.01).

[Clint]

Thank you Gentleman but how do I calculate the position size manually, without the pip size calculator?

You have to get the appropriate pip-value from somewhere.

So, if you are determined not to use the pip-value calculator, then get the appropriate pip-value from your broker's trading platform. Once you have the pip-value, use it, along with your account balance, your chosen risk percentage, and your chosen stop-loss, in the following formula:

Number of Lots = [(Account Balance, in dollars) x (Risk %)] / [(Stop Loss, in pips) x (Pip Value, in dollars)]

Also, you might want to read these previous posts:

Correlation with margin and lot size?

A question from "Calculating Position Sizes" article

[JacquesJoubert]

Thanks a Mil guys!

[Tassiefx]

Try googling "Easy Order". It is a script freely available for MT4. I love it.

You can either set the % risk you want or position size then move the lines on the MT4 screen for TP and SL.

Useful for market orders and buy/sell Limit orders