Common calculations and formula used with fx trading

Beginner Questions
1

I have some calculations I wish to share with you that I find useful. Please share calculations and formula you find helpful, or maybe you want help, eg you know what you want to calculate but don’t know the correct way of calculating it.
I’m in Australia so my examples may convert back to AUD, but you can change it to the currency of your choice and/or requirements.
Some of these might be in the School of Pipsology on Babypips but I will show them again.

When we are working out our profit or loss (eg for our journal) and we want the p/l in AUD (change with your currency), we divide the p/l by the buy AUD cross rate:

(sell price - buy price) x contract size = total profit or loss
total profit or loss / buy AUD/xxx cross rate

I know the brokers platform works it all out automatically at the end of the trade, but I like to know how to work it out manually before I enter a trade so I can see what I might be looking at if the trade is successful or not so successful and for my trading journal spreadsheet.

If the trade does not have the USD in it, I use the same calculations from above.
Say for example I sold 1000 micro lots of GBP/JPY at 129.74 and I exited at 128.88.

(129.74-128.99) x 1000 = JPY860

But we need that in AUD (or change with your currency and your cross rate) so the next step:

860 / AUDJPY crossrate of 84.32 = AUD10.19

When converting back into AUD do we use the buy or sell side of the pair?
Some say to use the mid level.
And we find the mid level by adding the Bid and Ask price together and deviding by 2.
Some say to use the Bid price as this can be more accurate.

And we always use the AUD/ cross rate like in my example to get it back to AUD , or use the currency pair with your currency and the one you want to get it from.
So if we were trading USD/CHF we would use AUD/CHF.

I use the following to work out the value of pips (when USD is quoted first):
eg:
(0.0001 / exchange rate) x lot size = pip value

When USD not quoted first:
(0.0001 / exchange rate) x lot size = pip value x exchange rate
to get it back to usd.

I like to use a fixed dollar amount for my risk.
Say I wanted to risk $50 (change with your preferred amount) on a trade and my stop loss distance is 72pips, I would:
Risk amount / Stop Loss number of pips
50/72=0.69

So in MT4 order window you would enter 0.06, which then gives you 0.60 cents per pip.

I hope you find these useful and please share calculations you find useful!

2

How do we calculate position size for XAUUSD, XAGUSD and WTI with regards to a fixed risk amount?

3

If you want to know what % a position is and you know what you want to risk you can do this:

(Risk amount100) / total capital in account
example
You want to risk $100 and the capital in your account is $2000 you would:
(100100) / 2000 = 5%

4

By either using a Position Size Calculator or Pip Value Calculator which also offers metals, or by substituting any currency pair which also has the USD as its quote currency (EURUSD, GBPUSD, AUDUSD etc).

5

Its ok to use a position calculator but I want to know how to calculate it manually. Most people I have conversed with have said these products are calculated differently to fx, but haven’t been able to back this up with examples.
From what I can guess you might be able to work out the number of ounces but you also need to convert these to lots.

6

Like I said, just substitute any pair whose quote currency is USD … that will work for manual calculation, too.
What you need to calculate position size is account balance, stop-loss in pips, and pip value for the pair.
Since all currency pairs having the USD as quote currency necessarily have the same pip value, it doesn’t matter which one you use … for a pip value calculator or for manual calculation.

As for ounces: XAU has 100 oz. per lot, XAG has 5,000 oz. Keep in mind that those are troy ounces (31.10 grams), not ‘regular’ ounces (28.35 grams).

7

How do you calculate the position size with account balance and pip value?

I only use what I showed in my first post above for position size:
Risk amount / Stop Loss number of pips

Thanks.

8

Well, you’ll need account balance in order to calculate position size … otherwise, how will you determine your 2% (or whatever risk percentage you use)?

[U]An example for EURUSD:[/U]
Account Currency: USD
Account Balance: 10,000
Risk (2%): 200
Stop-loss: 40 pips
You’ll need all four of the above factors to determine position size, which in this case would be 0.5 lots.
If your account currency was EUR, position size would be 0.66 lots.

If you miss any of the four (Account Currency, Account Balance, Risk, Stop-loss) you cannot calculate position size.

9

Obviously you did not read my post entirely, I said I use fixed dollar amount for my risk, I do not use % risk in my position sizing.
The calculation is:
Risk amount / Stop Loss number of pips
Say I was going to risk $100 on a trade and the number of pips was 60 you would then:
$100/60=1.66 which equals 16667 units or 0.16 lots in MT4.

10

Hehe, yes, I forgot that you were asking about a fixed amount risk … which is not such a good idea, since your account grows or shrinks with every trade. So using a fixed amount risk might turn out to be 20% of your account balance, if you have a losing streak or simply choose the wrong risk amount.
It’s better to work with risk percentage.

However you do it, the calculation remains the same … of course for you, account balance is irrelevant, so you only work with the factors Risk and Stop-loss (I left out Account Currency as well, because it needs to be determined only once).

In any case, your initial question was about calculating for XAU/XAG/WTI; that question has been answered, at least for Gold and Silver.
Since I’ve never traded Oil I’m not sure how to calculate it.

11

What is the calculation for the % risk model?
May as well have that calculation in the thread as well.

12

Can the calculations at Calculating Position Sizes | Position Sizing | Learn Forex Trading be used for gold, silver and wti?

13

What calculation can we do to calculate the value of a pip in WTI?

14

I agree that it is better to use a percentage of your portfolio rather than a fixed amount for the reasons mentioned by PaladinFX. I would not place more than 5% of your capital into one trade, 2%-3% is more appropriate but it depends on your preference.

15

The thing about the % risk model I’m not keen about is when you are in a draw down period it takes longer to recover because you are trading smaller amounts, the risk amount becomes smaller, therefore, your rate of recovery on profits is slower, even if you have a winning period your capital is recovering at half the rate it would if one was using the fixed $ per trade risk.

16

Thanks for sharing all the useful formula and calculations.AS a newbie learnt plenty of new things today.Thanks to all the participating members in this thread.