How much units cost

Beginner Questions
1

Quick question -

If I start my trading account and I put say £100 in it, then I buy 2000 units of EUR/DOL - how do I work out how much money that is going to cost me to make that bet?

I really don’t want to risk anymore than say 3% of my capital on any one trade/bet.

Thanks

2

Actually, risk is not only involved with your trading lots size, but it also depends on your stop loss position!

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3

Hi @elasticc

@LauChoKun is correct.

If your trading account balance is £100, then 3% would be £3. If you trade 2000 units (AKA 2 micro lots or 2K) of EUR/USD, then you are risking 20 cents per pip or 0.20 USD.

Therefore, you must convert the 3 GBP you can risk into the USD equivalent using the GBP/USD exchange rate. At the time of this post, the GBP/USD rate is 1.2788 so £3 equates to about $3.84 you can risk.

Divide that by 20 cents per pip on your 2K EUR/USD trade size and you get about 19 pips you can risk on this trade. If you reduce your trade size to 1 micro lot (1K EUR/USD) then you can risk 38 pips and still remain within your 3% risk tolerance.

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4

3% is absolutely huge.

Firstly you should probably be trading on demo, not with cash until you have plenty of experience, and secondly you should be sticking to 1% until you’re very familiar with the stuff you’ve been asking questions about.

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5

@LaughingCharlie you make several great points.

@elasticc you may find this article helpful in understanding the rationale behind risking only 1% per trade: The Most Important Math in Trading | New Trader U

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6

Thank you very much for your explanation! Really, this is the full scenario of risk management!

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7

You are too kind @LauChoKun but for those wanting to learn more about risk management, a good place to start is course 10 of the BabyPips school: Undergraduate - Senior - School of Pipsology - BabyPips.com

8

Thanks a lot for your link dear! It’s very much informative!

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9

Thanks for the replies. That makes sense about risking only 1% instead of 3%.

I’ve been using a demo account for a couple of weeks now and just learning as I go. Absolutely loving it. Very interesting.

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10

I was surprised to read in the babypips guide (linked above) that it suggests starting trading with $50k - $100k ?!

If I had £100, I still can’t work out how much money it would cost if I traded 2000 units of euro dollar.

11

The great thing I take from your explanation, and the thing I’ve noticed in my demo trading account is - to just use the take profit and stop loss controls to minimise risk. I don’t technically have to know and understand how to work out these trading losses/risk calculations - because as long as I set my stop loss at a price I’m happy with losing then I’m ok.

Don’t get me wrong, I want to understand these calculations and I’m sure I will - but what good fortune it is that the stop loss features are there in the first place - now I can just dial it in so I know that if it hits ‘X amount’ I will lose £3 and it will close the trade then and there.

12

While take profit and stop loss orders are useful tools for risk management, the sooner you can understand the calculations yourself, the better position you will be in to choose appropriate trade sizes for the amount of money you want to risk as shown our previous example.

13

Are you talking about spot forex trading?
Or something else like binary options?