Another thing is this:
If i want to state my stop loss for orders such as buy stop,sell stop etc,it won’t be hard to determine what value I want to use as stop loss.but if for instance I want to place the order at market price (I.e. instant execution),how will I be able to state the stop loss since the price will be fluctuating?or does the determination of position size before placing order work for orders such as buy stop,buy stop,Sell stop,sell limit etc
Ok.thanks.noted. @anon81929759 referred to this as the contract value of Eur/USD earlier on.I thought it was different for different currency pairs but you have explained it’s same for all pairs that has usd as the second currency in the pair.thanks
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Yes, this is true. It’s sometimes not quite as easy with market orders.
You can approximate it (by “being ready”) and always adjust it (the stop-loss, not the position-size!) immediately after entering the trade, though?
Sorry, I’m not quite sure what you’re asking, there.
You should always determine and know the position-size in advance, and you’ll need to know the distance between the entry-level and the stop-loss in order to work out the position-size, won’t you? Otherwise you won’t be able to manage your risk? But one can approximate it? You’ll know just before a potential trade’s coming up roughly where you’ll want the stop-loss?
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@Lexzykool317
i didn’t say different for CURRENCY PAIRS i said different depending on the INSTRUMENT you are using
so yes, like @LaughingCharlie said
if you are using Majors (containing USD) then yes they are the same
however if you take something like indexes, like US2000 for example, it will be different
the value of 1 lot in indexes is not the same as the value of a lot in currency
that’s what i mean
sorry for the confusion
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Alright.Thanks.i have gotten all the explanations so far on all the questions raised.I really appreciate.
ALL GOOD
just wanted to be clear.
No worries
One more question please.
From the example we made use of previously
After deducting my nominal margin I am left with $900 and 1% of that is $9.and my capital left after that is 900 - 9 = $891
If i make profit,my balance will increase to say $999
But if i lose it will b $891
Assume I make profit,for my next trade, to calculate 1% of my balance, will I calculate 1% of what is left of my capital after risking $9,whether I make profit or not (I.e. 900 - 9 = 891)
Or if i make profit of say $9, will I calculate 1% of 999 (I.e. 900+9 =999)
As 1% of my balance I want to risk in the next trade?
You mean $909, I think, rather than $999?
900 + 9 = 909.
Taking 909 as the figure, that will be true only if your R:R is 1:1.
If you’re re-adjusting your risk on a trade-by-trade basis (not everyone does - there are other methods, too), then you’d take the 1% as being 1% of either $891 or $909, according to the outcome of the previous trade.
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It’s $909 I meant.the for the correction.
Also thanks for the explanations.I really appreciate.
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@anon81929759 @LaughingCharlie
I understand all your explanations on how to calculate position size manually taking into consideration the margin,leverage,exchange rate and all that.
But there Is something that just crossed my mind still on this topic.
If i have taken into consideration all I am supposed to and this is the details for a trade I want to place :
From the image,does it mean I will have to be the one to determine if i want to risk $2 for either the standard,mini or micro lot size displayed?
Secondly,if the answer is yes,does it mean that it’s only $2 I will gain or lose if i place the trade for the lot size of 0.001,0.01 or 0.1?
Sorry I am still coming back to this.I just Need clarifications please
well… ok
well… YES
but…
let me ask you this
if a standard lot on this currency = $10 PER PIP
how are you going to afford $10 for 1 pip (let alone 200) if you are only risking $2
ANSWER = You can’t
so… even though TECHNICALLY it’s your choice which lot size you pick
the broker sort of decides for you that you can’t choose 1 standard lot
Now… YOU CAN CHOOSE
0.10 Lots (which is $1 per pip)
or
0.01 Lots (which is 10cents Per pip)
BUT… THE CATCH IS…
if you choose 0.10 lots, you can only run the trade the wrong way for 2 pips (Because your limit is $2)
if you choose 0.01 lots, you can only run the trade the wrong way for 20 pips (Because your limit is $2)
if you ran a 0.01 lot trade for 200 pips the wrong way, you would be risking $20 not $2
so if your risk on $2 is representing 1% of your account
if you run it for 200 pips, risking $20, you are actually risking 10% Not 1%
does that make sense…
now…
NO… HELL NO
Look
if you place a trade of 0.10 lots ($1 PER PIP) PER PIP, PER PIP… PER PIP… PER PIP (keep repeating that, until it sinks in)
Now…
if the trade goes the wrong way by 2 pips and you have a stop loss at 2 pips, you will only lose $2
if you have no stop loss, and the trade goes 50 pips the wrong way… YOU WILL LOSE $50
(hence why Stops are a good idea)
Now… if you have a stop loss at 2 pips
but somehow you picked the perfect entry point
- the trade starts
- it goes negative 1 pip
- you have NO TAKE PROFIT
- the trade goes back to 0 pips, then let’s say NFP kicks in and it shoots up to 200 pips
this means you are now in profit of $200
you can feel free to manually exit the trade and you will have a profit of $200
if you did the same thing on a trade of 0.01 Lots
you would instantly have a profit of $20
so… the fact that you limit your loss according to a certain pip distance , and this in turn defines your lot size.
DOES NOT MEAN YOU WILL WIN THE IDENTICAL AMOUNT YOU SET TO LOSE
HOWEVER… the lot size you choose WILL DETERMINE how fast or slow you win it
again… same scenario
lets say you traded 100.0 Lots ($1,000 per Pip)
and it moved (like i said) 200 pips
you would be in profit $200,000
now… before you go doing this.
you must understand this is ridiculously risky and extremely stupid
but, HYPOTHETICALLY
- if you have the account balance to start the trade
- if upon opening the trade your margin level was at 100% (which is low)
- if you set your stop loss at 2 pips
- and your lot size was 100.0 Lots
- And the light of the trading gods shone down on you and they said “bless you my child, you will be fortunate today hehe” and… somehow…price shot up by 200 pips
- consider your extremely fortunate
- yes you would have $200,000
NO… DON’T TRY IT 
but do you now understand how it works
Thanks. I think i understand it get now.i really appreciate.but please i stil need clarifications on this:
The minimum lot size a trade can be placed with is 0.01.but based on these calculations, with $300,the lot size is 0.00145 for a MICRO lot (meaning that it’s not up to 0.01).
But for a mini lot, the lot size I can place with $300 is 0.297 (larger than 0.01 and 0.00145)
How come it is so?that I can place a trade for a mini lot but I can’t For a micro lot (for which the lot size is supposed to be smaller)as the value of 0.00145 is less than 0.01?
ok
let’s go through this step by step.
MY TRANSLATION (Correct ME if i’m wrong)
Account Balance $300 for…[NOT RELEVANT]
Nominal Required Margin = 1% of Account Balance (I’ll take your word for this, and i’m assuming you are correct)
Account Leverage = 1:100 (not that we care, because you have already said that the Margin is 1% of Account Balance)
ok
so…
1% x $300 = $3 (Nominal Margin)
therefore
Account Balance - Nominal Margin = Remaining Balance
then… 1% Risk (As defined by you. for WHATEVER REASON)
so…
1% Risk x $297 = AMOUNT AT RISK
Amount at Risk = $2.97
ALL CORRECT SO FAR
now…
0.01 Lots = $0.10 cents per pip (Per Pip Value)
“= 297 cents” (i assume you converted $ to Cents here to make it easier)
i don’t think this step is relevant, but… hey… if it makes sense to you… GO WITH IT.
You have then DEFINED STOP LOSS TO BE 200 pips from entry
SO FAR… ALL GOOD
NOW…
YOU NEED TO KNOW WHAT LOT SIZE TO PUT IN THE TRADE
to do this
- You take your AMOUNT AT RISK (for the entire trade)
- You Divide it by the Amount of Pips that your stop loss will be placed at
this will give you the Value per pip
you then convert the value per pip to lots
lets look at what you did…
$2.97 / 200
or
297cents / 200
SAME THING
= 1.485 cents per pip
INCORRECT
YOU CANNOT HAVE CENTS CORRECT TO 3 DECIMAL PLACES, Money doesn’t work like that
so…
CORRECT ANSWER
1.49 cents per pip (rounded to the nearest decimal place)
FROM HERE IT SHOULD BE OBVIOUS THAT …
-
When you divide you 1% Risk by 200 pips (Stop Loss) you get approx 1.5cents
-
The Min lot size is 0.01 = 10cents per pip
THE CALCULATIONS STOP HERE
YOU CAN’T PLACE THE MINIMUM TRADE…END OF STORY
You only have the following options
- You are approx (let’s round it off) 10x off the mark
- so… You can reduce your 200 Pip stop loss to a 20 pip stop loss and you will be able to put on a 0.01 lot trade
or - Increase your risk to 10% and then you will be able to put a 0.01 lots size on for a 200 pip stop loss
(PS… DON’T DO THIS… OK… I’m just speaking THEORETICALLY)
Or
if you increase your Account Balance to $4,000 this will work
beyond this point
why in god’s name did you do this…
from what i can see (Since you haven’t labelled the items and defined them as something.
it looks like
-
You took the Lot size and multiplied it by the COST PER PIP… WHY ?
-
you then divided that result by 10… Why ?
then… yes you get 0.01485 /10 = 0.001485
and you called this 0.001485 LOTS
Youv’e already worked out the lots
why did you go and divide it up again
this last section is not necessary
the bottom line is… You can’t place a trade of 0.01 if your risk of 1% = approx 1.5 cents
simple as that
I have now figured out that this was the mistake I have been making when trying to calculate.hence, the reason why I was getting all wrong.thanks a lot for the explanations.I am very grateful
all good
You’re very welcome
it’s nothing new that in the beginning the numbers can spin you around hehe
happens to everyone
dont’ worry about it
So true.I just fully grasped the concept of how wrong position sizing or undercapitalization can blow your account…and how greed or ignorance can also lead to more loss too.
Thanks a lot once again
IF YOU DID, then that’s awesome
because initially, how newbies blow their account is … they are unaware of the consequences of larger lot sizes.
they tend to think that there is no much difference between putting down a 0.2 lot size and 0.3 lot size
because they look at it in terms of 1 pip
but i hope you can now see how this can turn on you very quickly
good on you mate
Yes…I am just getting to fully realise the implications of using large lot sizes.
Thanks a lot for your patience and taking time to explain it all.
Please,was the contract value for a nano lot for the major currency pairs?
Is it actually this:
0.001 lot = $0.01 per pip?
well, when trading currency
theoretically YES 0,001LOTS = 1cent per pip