FOR THE EXAMPLE BELOW. Where does that 10k units come from, is that the standard for the unit per pip value ratio?

Newbie Ned just deposited USD 5,000 into his trading account and he is ready to start trading again. Let’s say he now uses a swing trading system that trades EUR/USD and that he risks about 200 pips per trade.

Ever since he blew out his first account, he has now sworn that he doesn’t want to risk more than 1% of his account per trade.

Let’s figure how big his position size needs to be to stay within his risk comfort zone.

Using his account balance and the percentage amount he wants to risk, we can calculate the dollar amount risked.

USD 5,000 x 1% (or 0.01) = USD 50

Next, we divide the amount risked by the stop to find the value per pip.

(USD 50)/(200 pips) = USD 0.25/pip

Lastly, we multiply the value per pip by a known unit/pip value ratio of EUR/USD. In this case, with 10k units (or one mini lot), each pip move is worth USD 1.

USD 0.25 per pip * [(10k units of EUR/USD)/(USD 1 per pip)] = 2,500 units of EUR/USD

So, Newbie Ned should put on 2,500 units of EUR/USD or less to stay within his risk comfort level with his current trade setup. Otherwise, he’d be regressing back to his previous gambling self.

Calculating position size is a really important step in planning a trade. As in this example, the way to do it is to start with risk as a percentage of account capital. Its valuable to have examples like this on the site.

It also follows that if the trader is going to open a second trade, the position will be slightly smaller. After placing the first trade, with a 1% or $50 risk, the trader now only has $4950 of available account capital. One percent of $4950 would be $49.50, the maximum risk for Trade 2. And so on and so on.

Hi @Christopher98 , the accepted basic size for trading FX is the STANDARD lot which would be equal to 100 000 units of EUR in your EURUSD example. Large institutions will trade many standard lots in one go but for the average retail trader that would be unaffordable so brokers make it possible to place orders of a fraction of that, like so called MINI LOTS = 0.1 standard lot = 10k units as per your question. Some even do smaller like 0.01 standard lot = 1k units. So you have to get familiar with your broker’s ticket language when you place your order but it all comes down to calculating how many units you should enter for. Hope it helps.

Of course if the country you are in allows spreadbetting as I think is the case for @tommor in UK, you only concern yourself with pip value and don’t bother with standard or mini lots.