Clarify on calculate PIPS

Beginner Questions
1

Ok i am beginner to forex trading. But this is abit confusing to me, look below:

I have learn about this lot sizes

Lot (1.00) = 100,000 Units($10)
Mini Lot (0.10) = 10,000 Units ($1)
Macro Lot(0.01) = 1,000 Units($0.10)

Let’s say you have an example to calculate the pip
Entry = 1.0584
Exit = 1.0550
Risk = 34 PIPS(Exit - Entry)

Portfolio Value = $10,000
You only want to risk 2% of $10,000 which is $200

How many units can i buys?(lots)
The answer is 59,000 units(0.59 Lots)

This is the formula to calculate the lot
(Porfolio Risk * 10) / (Trade Risk) = position size in lots

And this is the solution
34 * 10 = $340
2% Risk = $200
$200 / $340 = 0.59 Lots

And finally my question is…

Why do i need to multiple 34 Pips with $10? why not $1?

2

this is as follows

first it’s micro not Macro

1.0 Standard Lot = $ 10 Per pip
0.1 Lots = $1 per pip
0.01 Lots = 10 cents per pip

do you really need to remember the Standard , Micro and Mini…NO

this is correct because 584 - 550 = 34 pips

it’s not called Portfolio value, it’s called ACCOUNT BALANCE.
but… yes this is correct 2% x 10,000 = $200 at risk

this is probably the part that is confusing you
firstly… Units are not Lots
Secondly, who cares how many units of currency you can buy, it’s about what lot size will
you use and how much money will it make you

and lastly to know HOW MUCH YOU CAN BUY is a question of … Where is your stop loss located, because this will determine your lot size

See. if you are risking $200 total
and you put a stop loss at 100 pip
then 200 divided by 100 = $2 per pip so 0.2 Lots is what you will use

but if you put your stop loss at 10 pips
then 200 divided by 10 = $20 per pip so… 2.0 Lots is what you will use

you are risking the same amount per trade
but your lot size is determined by how many pips you want to put your stop loss at

ok so first of all
where did you get that 34 from
it would appear that it’s 34 pips from Entry to Take profit
Taking profit is NOT A RISK
you are supposed to calculate Entry to Stop loss

instead of explaining why you need to multiply by 10
why don’t you just do it in a simpler way

Figure out your Entry
Figure out your Take profit
Figure out your Stop loss

the difference between the Entry and Stop Loss is your PIPS RISK PER TRADE

now. obviously you know how to calculate 1% risk of your account balance
so then the answer to that (le’ts call it X) will then do this

X / PIPS RISK PER TRADE = COST PER PIP

once you have cost per trade
convert it to lot sizes by using that table you used

simple

3

How did you get 0.2 Lots and 2.0 Lots?
Care to share.?

4

@Sureshhey
Yes i will care to share

Now. first of all ,i’d like to say , i thought that my explanation was plainly obvious
but ok… i’ll go deeper

so
First you establish what your account balance is
then you establish HOW MUCH OF THAT you want to risk

there are only two ways you can do this, you can risk based on $$$ amount or % Amount
YOU HAVE DEFINED A PERCENTAGE and we have CALCULATED that this works out to a $$ Amount of $200

IS IT CLEAR UP TO THIS POINT ?
if yes, then proceed, if not. let me know

so to be even more clear
$200 IS WHAT YOU ARE RISKING PER TRADE (or for that 1 trade)
Meaning… Regardless how how many pips you put your stop loss from the entry
whether it’s 1pip or 1 million pips
YOU MUST NEVER EXCEED $200

the way to do that is to DIVIDE THE AMOUNT OF $200 BY THE AMOUNT OF PIPS TO YOUR STOP LOSS
this will always ensure you do not lose more than $200

so our 2 Scenario’s were
10 Pips Stop Loss
100 Pips Stop Loss

so
10 pip stop loss
$200 / 10 pips = (COST PER PIP) = $20 Cost Per pip
meaning for each pip movement you will lose or win $20 depending on the direction

and on
100 pip stop loss
$200 / 100 pips = (COST PER PIP) = $2 Cost Per pip
meaning for each pip movement you will lose or win $2 depending on the direction

DO YOU UNDERSTAND IT THIS FAR
if yes, then proceed
if not THEN TELL ME

so
if it’s 100 Pip Stop Loss - You are trading at $2 Per pip
if it’s 10 pips stop loss - You are trading at $20 per pip

You NOW NEED TO CONVERT $ PER PIP TO LOTS

to do that YOU FOLLOW THIS RULE
(this is only for currency) indexes and commodities and other instrument will have different conversions
but. FOR THE SAKE OF UNDERSTANDING IT SIMPLY JUST FOLLOW THIS

RULES
if (1 standard Lot) 1.0 Lots = $10 Per pip
if 0.1 Lots = $1 Per Pip
if 0.01 Lots = 10 cents per pip

and if 0.01 lots / $0.10 cents is THE MINIMUM YOU CAN TRADE

then OBVIOUSLY if you are risking $2 per pip, you will use a lot size of 0.2 Lots
because
0.1 Lots = $1 Per Pip x 2 = 0.2 Lots or $2 Per pip

and by that same logic if you were risking $20 per pip you will use a lot size of 2.0 Lots
because
1.0 Lots = $10 Per Pip x 2 = 2.0 Lots or $20 Per pip

so let’s complicate this a bit. TO ENSURE YOU UNDERSTAND IT
let’s say your risk was $63.50 per pip
it would be 6.35 Lots DOES THAT MAKE SENSE ?

BECAUSE
1.0 Lot = $10 x 6 = $60 or 6.0 Lots
0.1 Lots = $1 x 3 = $3 or 0.30 Lots
0.01 Lots = 10 cents x 5 = 50cents or 0.05

so because
$60 + $3 + $0.50 = $63.50
then
6.0 Lots + 0.30 Lots + 0.05 Lots = 6.35 Lots

DOES THAT MAKE SENSE NOW

6

Thank you very much Martin :grinning:

7

@Sureshhey
Not a problem at all mate
as long as YOU DID UNDERSTAND IT

so… as you can see, worrying about how much currency you are trading is pretty pointless for the most part
all you really care about is how much you make

ONE LAST THING
in your calculations
DO NOT FORGET TO ACCOUNT FOR NOMINAL MARGIN when calculating risk ok

so what i mean is this

you calculated that 1% = $200
and then basically worked out how far you stop loss is
and divided by that many pips
then converted to lots

that’s fine, but you forgot these 2 things

let’s say you want to put a take profit at 10 pips and you are trading 0.1 Lots
which means YOU WANT TO MAKE $10
well, it’s not going to happen unless you account for spread

so if the spread is 3 pips
you then need to put your Take profit at 13 pips instead of 10 to make $10 … Make sense

and secondly

NOMINAL MARGIN is the amount of money that is required to keep a trade open

so Example
if you trade EURUSD Your Nominal Margin might be $300

you might be trading 0.1 Lots and trying to make $10 but your margin is $300

so… if your account balance is $1,000
and you figure 1% of that is $10
and you are only risking $10

NO… THAT’S NOT TRUE
because to start the trade you need to put in $300 (or whatever it is at the time)
so
$1,000 - $300 = $700
Meaning, you really should be saying

1% x $700
Not
1% x $1,000
because if you say 1 % x $1,000 and you base your lot size on a $10 risk
YOU WILL ACTUALLY BE RISKING MORE THAN 1%

this is also another thing to consider when calculating risk

8

I would like to keep an contact with you mate. You seem to know your stuff well. I am still learning forex. Btw i am using OANDA to do demo. Should i continue to trade with OANDA or other brokers when doing live?

9

HEHE
@Sureshhey

ok, i’m not going to just answer your question here, i’m going to say it TO ALL NEWBIES ok

Now mate, a few days ago i said something on a post and the guy took it as an insult (but it was not intended that way)
My point is this…

I’m going to now say something to you that might come across as an insult
I WANT YOU TO NOT TAKE IT AS AN INSULT, but instead i want you to take it a Critique ok

so… lets get to it

  • I’m a blunt person, i don’t like B.S. and i don’t beat around the bush, i i don’t like you , i tell you , i don’t like you,
    and i expect you to fix the problem that you have. (Assuming the problem is with you, but… you get what i’m trying to say … right ?)

Now, most people don’t do that
Most people take stuff personally and never actually fix the problem within, but instead,they get offended and avoid

  • i do know what i’m talking about, You’re right.
  • that’s fine, and a lot of people do want that.

here’s the thing though…
Understand how many newbies ask me to stay in contact with them
Now Try to imagine if this was you, and HOW MANY are asking you to Besties forever hehe

Now try to understand how difficult it is to make the time for all of them
there’s no way
Now try to understand that Most newbies are lazy, Greedy, Money hungry little timewasters that don’t want to work or put effort in, but instead they want the answer given to them on a silver platter on how to make unlimited income

Point is… I don’t have time for these people because THEY ALL EVENTUALLY GIVE UP

Now. occassioanally i come across newbies that actually stick to it

I have no problem teaching people who want to learn
I do have a problem with time wasters wasting my time

Now, this is the point where you will say “Martin, i’m committed dude, i mean… i am sooo firetrucking committed that the police are going to comitt me to a prison” hehe

I get it… YOU THINK YOU’RE COMMITTED
and Everyone says this at the beginning

and not to drown out your dreams or anything, but LET’S BE REAL OK
Understand the numbers

EVERY SINGLE PERSON THAT COMES TO ME, SAYS THIS
and very very few actually come good

the bottom line is… DON’T TELL ME… Just do it
i don’t need to know… you need to know

Now moving forward from that and TO THE POINT THAT I WANTED TO ADDRESS

Mate.
Newbies makes mistakes all the time
and HERE IS YOUR MISTAKE

the fact that you are asking is a Mistake

you see, I understand why you are asking, that’s cool
and if you want to stay in touch, that’s cool
and if you want to put in effort, that’s cool
and if one day you become financially free, that’s cool, i will know that i helped make that happen. which i would enjoy.

but YOU NEED TO LEARN TO THINK FOR YOURSELF

Newbies always get too comfortable with relying on the advice of people above them

Example, that guy in the other thread that took it personally
he was asking some sort of question relating to risk
and he didn’t mention what instrument he was using

so i said “it would be good to know what instrument you are using”
and he said something like
“I keep hearing i need to mention what instrument i’m using… WHAT’S AN INSTRUMENT” Oh… My… God ok
[Double Face Palm] [Double Face Palm] seriously

ok… i get it, he doesn’t know
but, the point is this

instead of just doing a google search like this… which took 2 second

2018-01-12 18_22_13-forex terminology instrument - Google Search.png803×715 39.2 KB

and you technically don’t even need to go to a site beyond google to get the answer
I MEAN… CMON

People enter forex to make money, Meaning… it is therefore assumed that you are going to take some sort of responsibility to learn stuff

later on another person who had experience commented on that guys comment
and i thought his comment was funny
so i commented on that
then the first guy took it offensively

so… what ??
if someone does or says something really really stupid, and i not allowed to laugh at it or say that’s it’s stupid hehe.

THE POINT I’M TRYING TO MAKE HERE IS THIS…
Your comment also was on the basic side of things

but. THE DIFFERENCE WAS… YOU SHOWED THAT YOU AT LEAST DID RESEARCH
and in your case
you just didn’t understand the information that was presented to you
so i figured… ok i’ll give it another go to explain it to you

so you see mate
in forex THINK BEFORE YOU ASK PEOPLE WITH MORE EXPERIENCE … SHOULD YOU DO THIS OR WHAT’S THAT OR WHATEVER

so asking me SHOULD YOU GO WITH ANOTHER BROKER

  • Firstly it’s not my place to tell you this
  • Secondly you should research it on your own (i did )
  • but also, the way you’re asking is as if… i could literally say anything, i could give you the link to the shonkiest broker i know and you’ll go there

and you need to learn to not be this naive in forex, because Naivety is what makes you lose money.

You need to test everything

so my answer to your question GENERALLY SPEAKING is this…

Stay with Oanda , since you are with them
also Know why you are with them (overall most people don’t have issues with Oanda) Unlike say VIP Brokers which will screw you the first chance they get

so you are ok from that point of view

but i would advise that you compare other brokers with Oanda and if you find a better one for you . go with that.
but don’t let other people tell you what broker to use

THINK FOR YOURSELF IN FOREX
get used to looking for answers instead of asking for them

i mean IN THIS DAY OF INFORMATION WHEN INFORMATION IS LITERALLY AT YOUR FINGERTIPS AND YOU SHOULD NOT NEED TO ASK

I mean, you can google how to make a bomb, you can google how much it costs to make a spaceship in seconds.
back in my day we had Encyclopeadia brittannica and that was it

you guys have the bloody internet
so… WHY ARE YOU ASKING ? hehe

it seems that the bigger the internet gets MORE people are asking MORE QUESTIONS
you would think it’d be less

so that’s my answer to you re the broker thing
as for the rest of it… sure no worries

be cool

10

Ok Martin_K thank you very much mate. I am slowing learning. Once i am satisfied, i’m into live right away.

11

i am also slow at learning, it’s ok
and yet i’m still an engineer hehe

the reason is, there is a difference between being slow to learn something
and then not being able to learn it at all

Slow it fine, it’s just means you’ll get there a bit later, that’s it
so take your time, test the brokers and figure out which is for you

there’s no shame in saying that you are slow to learn things

take me, i learn things slowly as well
but, when i get them (as you’ve already seen) i really really get it
so yeah…

12

Good words mate. Let’s have a chat to learn more forex guides from you.
I want to be FOREX MASTER TRADER OF THE WORLD :grinning:

13

@Sureshhey
well., i can’t teach you that because i am not a master trade of the world.

i can teach you how to be financially free however.
but, YOU HAVE TO DO IT that’s the catch

Sure we can catch up, no problem
[Removed for Forums Policy violation]
all good

17

@Sureshhey
hehe
i guess for some reason the mods have taken my statement to catch u with you personally
clearly that line of text is removed

so i guess we can’t catch up

I’m currently in the process of asking them what this was for
and i’ll let you know
but i think my use of the S word hehe was probably the issue

but seriously… it’s not like i put up a link or something
i don’t get it

anyway… i’ll wait for their reply

18

You got that bit right.

You got that bit wrong.

“Risk” is the difference between entry-level and stop-loss, not the difference between entry-level and target.

“Risk” means “what you can lose if it all goes wrong”.

1 Like
19

@LaughingCharlie

that’s right, RISK is the difference between the ENTRY and STOP LOSS
because if things go sour, this is what you stand to lose
I AGREE

so… what part of this that i said was incorrect
i didn’t say it was the difference between the Entry and the target

i said it was the difference between the entry and the exit

meaning when you EXIT a trade it can be both Stop loss or Take profit or Manual Exit
i was trying to simplify the terminology for him so he could understand the concept.

so i was talking about Stop Loss when i said EXIT, because obviously it wouldn’t be Take profit, that would be silly

but we agree
What you stand to lose is RISK