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

As [B]rhodytrader[/B] 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) [B]such that 200 pips = $60,[/B] 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 [B]one pip of AUD/JPY[/B] 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 [B]2 micro-lots of AUD/JPY.[/B]

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 [B]2,383 UNITS of AUD/JPY.[/B]

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: [B]USD[/B]

• Account balance: [B]3000[/B] (without the $ sign, and without the comma)

• Risk percentage: [B]2[/B] (or whatever risk percentage you choose for your trade)

• Stop loss in pips: [B]200[/B]

• Currency pair: [B]AUD/JPY[/B]

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

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