Calculating your position size

Beginner Questions
#1

Good Morning All! :slight_smile:

I was wondering if you could answer the following question that I have on risk/position sizing. After reading through a couple of threads I came across the following steps.

Account size = $10,000
Currency = EUR/USD (just so I can use simple numbers)
Stop (based on technicals) = 30 pips
Risk = 2% of your Account = $200
Lot size = Mini = 10,000
Pip value for a Mini lot on EUR/USD = $1
Stop of 30 pips * $1 per pip = $30
Position size = $200 / $30 = 6.67 mini lots.
Since you cannot trade fractional lots (forget Oanda) you must round the position size DOWN to 6. Always round down to be more conservative.
True Leverage = Position Size / Account Size = 60,000 / 10,000 = 6:1
This level of leverage is too high if you lack experience. Better to reduce your percent risk from 2% down to 1%. That will reduce the leverage to 3:1 in this case.”

So I followed the steps and here are my notes below:

  1. Account Size = $1250
  2. 2% = $25
  3. Stop = 50 pips
  4. Micro lot = 1000 units
  5. Price per pip = $0.10 (10 cents)
  6. 50 pips(my stop) * $0.10 = $5
  7. $25 / 5 = 5 micro lots / 5000 units
  8. 5000(position size) / 1250 = 4 means 4:1 true leverage

The part that confuses me is when Input these figures into my broker I get different numbers coming up.

Using the above numbers I end up with 25 units(using 1x broker leverage). Therefore the only way to adjust the number of units without changing my stop or changing the % of account risked is to change the broker leverage.

So do I simply adjust the broker leverage to reach the 5000 units position size? Assuming this is it true I would need to have 200x broker leverage. However, 200x broker leverage seems very is high. Could you please advise?

Thank you for your time.

Tezzums

#2

The settings you entered imply you’ll have leverage not smaller than 1:200. Chang the leverage and you’re done. Or try it on demo first it will show you how correct you’re in your calculations.
I’m using 1:100 with Hotforex, approx with same R/R ratio, also instead of leverage you can effectively manage your position with lot size

#3

Hey ProfitBaby,

Thank you so much for your reply. I should have said firstly that I am using a demo account. The numbers I provided were just to illustrate my thought process.

With my broker you can adjust the following when placing a trade:

A) The amount of money risked e.g. $25 in this example
B) Stop loss & Take profit e.g. in this example SL is 50 pips
C) Broker Leverage(Offered at rates of 1x all way up to 400x

The lot size is shown in units(my broker allow trades smaller than 1 micro lot), therefore to adjust your lot size you have to alter the above factors(A, B or C). I have included a screen shot below to demonstrate. If this violates the terms and conditions please let me know and I will gladly remove it.

1x.jpg700Ă—557 27 KB

So given my calculations that I provided in my OP, the only way I can increase my lot size to 5 micro lots is to adjust A, B or C.

Now, I don’t want to increase above 2% because I have been advised to never risk above 2-3%(3% if you are experienced). I don’t want to increase my stop loss because this has been determined by my technical analysis(SL placed just below the support level). Therefore the only viable option is to adjust the broker leverage. Now my worry is that I have been advise to keep leverage low. 200X seems very high, however when you work out the resulting lot size(5000 units) this actually is quite a low rate of true leverage(4:1).

So my real question is whether it’s OK to use high broker leverage(in this case 200x) as long as the true leverage(Lot size / account size) remains low(so below 5:1).

Sorry, if this post has dragged on, but I want to be 100% sure I have understood the really fundamental stuff before I move on.

#4

Hi,

I can not tell if you are right about the leverage. I never look at it because it is in my opinion not important for the trade If you control your risk to 1%-2% you will not use a big leverage. Not so long a go I red something about this subject here on BP The advice was to set/take the leverage to maximum. (I think less risk for margin call)
To see how it works I opened once a demo account with a 1:1 leverage. I had no problems with trading with normal risk of 1% Only problem was opening more trades in the same time (not enough margin)

My advice is to concentrate on trading, Risk, RR, money management position size, etc Leverage can be dangerous if you open a lot of positions in the same time or taking a big risks

#5

You are applying two ways to limit your risk. 1. not trading more than 2% and 2. A low leverage. The idea is that you apply one of them on your trade. If your stops are good enough and you trade no more than 2% the leverage used is not important. You can sat it on 1000:1 if you like it doesn’t affect your risk as that is already limited to 2% per trade.

So decide to either use the max percentage or the leverage, but applying both and using such a low leverage is what is limiting you now.

When you set you account to 200:1 this doesn’t impact your risk when you only put 2% at risk.

#6

Is this the platform you’re trading from :smiley: ??Looks like ****ty BO or some place to have fun with trading bias.
In other words its not a normal professional trading platform (sorry I have another view on how it should look).
Install old and kind MT4 to get a knack of R/R and risk calculations. And use Bible from sharpe&bailey (risk management book) if you’re set for serious trading.