can anybody explain how does this tool actually work , and can we rely on it or what? i know it caculates the best possible position size for us based on our capital and the amount we are about to risk and… but what about leverage? some brokers offer fixed leverage like 1:500 and some offer floating leverages…
Basic principle of position sizing - calculate the position size from the risk.
Decide how much of your capital you are prepared to risk on the trade: let’s say its 2%: calculate how much money is 2% of your account.
Identify your entry price: identify your stop-loss price: calculate the distance between them in pips.
Calculate how much money per pip will mean your 2% loss is reached if the stop-loss is hit. That gives you the position size.
@Shrezinc when you fill in the risk percentage box with 2 as in Tommor’s example (or 1 as some more risk averse traders will advise, that’s % of your trading capital) it allows you not to worry with leverage calculations. The resulting position size will be reasonable within a 1:20 or 1:30 leverage.
If you want to play with leverages in the hundreds it’s another story… you should tread very carefully and that’s absolutely not recommended for a newbie.