Algebraic formula for calculating risk

Beginner Questions
1

Hello,

This is my first post, and the first time I had something to contribute. I hope this will be helpful to someone out there.

This is a simple formula I use to choose how many lots to buy at 2% capital risk.

[(0.02c]/r]/x=y

c= initial capital
r= pips you are risking in .0001 per pip format
x= the lot size you are using

Example:
If I have 5000 in my trading account and I am trading mini-lots where I will be placing my stop at a loss of 40 pips:

0.02*5000=100
100/.004=2500
2500/10000=2.5

Therefore, since we cant ship .5 lots, I would enter the market buying or selling 2 lots, and will have remained within my 2% risk allowance.

I am definitely NOT an expert at this, I am a complete newbie with a demo account; however, I thought that maybe this simple formula could help someone out there, because I noticed that sometimes you just don’t have time to do complex math without a formula when its time to buy or sell. I will be thrilled if someone replies back that this has been helpful.

GBLilleyUSMC

2

5 years later, someone revives your thread to say “thank you” and “you’ve been most helpful” :slight_smile:
It needs a slight addition tho.

The price of the pip value needs to be factored in for it to work on other crosses than the $10/pip lot.
I’ve taken the liberty to modify it to this:


Initial Capital * Percent Risk            
 -----------------------------      /     Point Value in Account Currency
              100
      -----------------------------------------------------------------
                 Total Risk in Points

or:
((Initial Capital / 100 * Percent Risk) * Point Value in Account Currency ) / Total Risk in Points

Sorry to make it so verbose but I use your formula in a MT4 script for opening orders of proper lot size.
The condensed form in MQL is:

 lots = (value_at_risk / MarketInfo(Symbol(), MODE_TICKVALUE)) / risk_in_points;;

Value At Risk represents the initial x% of account balance.
Risk In Points includes the spread as forgetting that will skew your lot sizes and harm the Risk:Reward ratio.

Thanks again :slight_smile:

Filson