I’m going to ly out 2 different formulas and if someone would please make sure that I’m calculating and computing these correctly… 1. Accont size = $1000 Percent Risk = 2% Amount risked = $20 Stop size = 30 Pips Pip value = .10 cents Total Pip value = 30 pip x .10 = $3 Position size = $20/$3 = 6.67 micro lots ( rounded down to 6 ). Resultant pip value = .6 ( 60 cents per Pip ). HERE is where my question lies… Does this mean that the P/L in this trade, that say are trade goes 100 pips in arefavor, will that be a Profit of ( .60 x 100 pips = $60 profit OR is it .10 x 100 pips = $10 ?? 2. Pair trading USD/CAD Current Exchange Rate = 1.4718 Units trading = 1000 ( one micro Lot ). HERE is where my question lies… Do you use 1000 ( micro ), 10000 ( mini ) 100000 ( standard ) as the base for all formulas, OR does it come down to how many LOTS you are going to trade based on the % of your account at Risk divided by the Stop on Pips ( say 3000 or 6000 ) ? x 0.0001 = 1 1/1.4718 = 0.679 So the Pip value is around .68 cents Thanks for the help, hope wasn’t to confusing - Mike
Hello, Mike
You are using the formulas correctly.
[B]1.[/B] Regarding your first example, and your first question: your profit on a 100-pip move in your favor would be [B]$60. [/B]
Each pip is worth $0.60 to you, because you have a 6-micro-lot position.
[B]2.[/B] Regarding your second example, and your second question: in order to determine a pip-value, you have to know what size lot you are planning to trade (nano, micro, mini, etc.). When you have determined the correct pip-value, the formula will automatically give you the answer in the same size lots.
Using your USD/CAD example, you said USD/CAD = 1.4718 (I’m sure you know that the actual price of the USD/CAD is closer to parity — but, let’s use your number for this example.)
If the USD/CAD is 1.4718, then the formula for finding the pip-value of the USD/CAD (in U.S. dollars) is:
For nano lots: 1 pip = $0.01 / 1.4718 = $0.00679
For micro lots: 1 pip = $0.10 / 1.4718 = $0.0679
For mini lots: 1 pip = $1.00 / 1.4718 = $0.679
For standard lots: 1 pip = $10.00 / 1.4718 = $6.79
In each case, [B]the pip-value is X / the price of the USD/CAD[/B], where X is a penny, a dime, a dollar, or ten dollars, depending on the size lot you are going to trade.
Once you have entered your lot size into the formula in this way, the formula will give you the result in terms of that lot size.
[B]So, in the case of your micro account, the correct pip-value is 6.8 cents.[/B]
Using your 2% risk and 30-pip stop-loss (from your previous example) the formula would work out this way:
Position Size, [B]in micro-lots[/B] = [(Account Balance, in $) x (Risk %)] / [(Stop Loss, in pips) x (Pip Value, in $ [B]per micro-lot[/B])]
= [1000 x 0.02] / [30 x 0.068]
= 20 / 2.04
= [B]9.8 micro-lots[/B]
(which you would have to round down to 9 micro-lots in order to stay strictly within your 2% risk parameter)