# F.A.O Baz1982 (Lot Size )

Hi Baz !

Thanks for your kind help. You have always answered my weird questions and helped me with forex mathematics. Since in many previous posts, you have emphasised the babypips calculator so I’ll talk in detail about this lot size thing here. My purpose is not to offend you at all :). Its just different mind set and theory.

First of all, this is not set in the stone that we should determine our lot size based on Risk % Method. There are other methods too, which I’ll talk about here later in the post. But first let me deal with my example and I’ll attach Babypip’s and Oanda’s calculator (calculations) here as well.

With \$1,000 USD in my account, If I want to risk 20% of my account on a particular trade with 50 pips stop loss, the babypips calculator shows 40,000 units (see attached pic)

Now here’s Oanda’s Order Window:

So now let’s compare these two:

1. The Oanda’s calculator (basically order window), you can see we cannot enter the trade based on 40,000 units, which should be lot size according to Babypips Calc.

2. The Margin used is more than the account size actually.

The method I use, which may sound inappropriate and insane to many here, is based on margin %. I always want to use 20%. If you apply the same 20% to units available, and then calculate the margin, it also boils down to 20% (I’ll double-check it twice to confirm when the price changes).

The leverage is the key here, which allows us to control higher value trade.

With \$1,000 USD and 50 Leverage and EUR/USD at 1.2850, total units available are 38,910 units.

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= [( \$1,000 USD x 50 Leverage )/1.2850] = 38,910 units

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I will want to use 20% of total units available, i.e. 7,822
Does this also mean that we are using 20% margin (meaning margin is 20% of our account size) ?
Lets check:

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= [(7,822 units x 1.2850)/50 Leverage] = \$201 USD, which is almost 20% of our account. So here I have confirmed it.

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So the main thing is that:

1. Risk % method is not the only method to determine the lot size.
2. Leverage does determine the lot size and lot size determines the margin and pip value and hence profit.

I may be wrong and a lot of traders here may take me as a super-dooper idiot or whatever. But I made my point. This is not to offend or falsify anyone, just my own calculations.

Thanks for your help as always

Your kind comments and corrections are most welcome and will be highly appreciated

Thanks

Someone please check my logic as I’m still a newbie so I could easily be wrong but using the BabyPips calculator earlier when looking at your other post, I got the same figure as you did. So a 0.4 lot would make your 50-pip stop loss equal \$200 & therefore 20% of your account.

Now, if you we’re to buy a smaller sized lot, the pip value would vary & your 50-pip stop loss would no longer equal \$200.

Rule of thumb (just roughly accepted figures):
1 Standard Lot = \$10 per pip
0.1 Lot = \$1 per pip
0.01 Lot = \$0.10 per pip

So if you buy a 0.4 lot as in the BabyPips calculator example: 1 pip is equal to \$4. Multiply that by your 50-pips gives you your risk of \$200 (20%).

So if you we’re to buy half the recommended lot size of 0.2: 1-pip equals \$2 & your 50-pip S/L means you’re only risking \$100. So straight away your trade has gone wrong - yet you’re talking about trading 7,922 units (20% of your available units) so rounding that up to a 0.08 lot-size at \$0.80 per pip, you’re now only risking \$40. So the desired trade risk is now all over the place.

This is all merely my interpretation, as I said, I’m new to the game so I could easily be proven wrong.

Errrrrrr, this is not the question of being wrong or right. But like I said the main point is that Risk % Method of determining the lot size is not the only method.

The method I show you is “Margin As % of Account Method” [:p] and accordingly, it “does” affect the lot size (by lot size, I always mean Units) and pip values and profit.

7,992 (20% of units available) or 8,000 units gives the pip value of \$0.8. At TP of 50 pips, its \$40 and for SL, it will be a bit higher than \$40.

Now you see that \$40 loss is same as risking 4% of account size per trade.

When you say that the desired trade risk is now all over the place, I really don’t understand this point.

Hope I made my little point clear. Yes anyone can be easily peasily proven wrong. No 2 minds have same mindset.

As always, thanks for your time and post.

Man I am confused!

I can follow the logic of having a system that risks 20% of the available units on account rather than a percentage of the balance but as soon as you bring leverage in to it, I am lost. The above just leaves me scratching my head.

I view it as: either your risking \$200 (20% of your balance) or you’re risking 20% of your available units & therefore \$40.

I hope I don’t come across as just being argumentative, it’s just that I don’t ‘get it’. So as I don’t think I can wrap my NoOb noggin around this, I think that we need to agree to disagree, get better at explaining each others point or have a pro correct us. No disrespect or anything meant Shawn, I just don’t understand it - sorry!

The way you say risking \$200 or 20% of account is Risk % Method (as on babypips calculator).

The way I say it is Margin as % of Account Method. I want my margin to be always 20% when I enter the trade, not my stop loss or risk % per trade.

You are right at your own place but also, I am not wrong at my place.

Just 2 different methods. Thats it.

Here is another look, now at USD JPY. See it yourself

The recommended lot according to babypips is 32070 units per 50 pips stop loss, which gives the amount at risk of \$200 (or 20%). But at the same time, see it for yourself in Oanda’s Order Window, it is showing the same amount for stop loss (\$204.2) but look at the margin \$641.40, which is 61.44% of the account size.

Don’t get confused, you have your own way, I have my own.

Please disregard the second chart as the number of units in both calcs are not same but approximately close.

Nope, I’m still pickled.

As long as it works for you, all is good.