Hi,

No doubt this has been asked before but I’ve used search function and couldn’t find my answer.

I just started and am struggling to calculate lot size on oil and indices based on risking 1% of my account.

Any pointers please?

Hi,

No doubt this has been asked before but I’ve used search function and couldn’t find my answer.

I just started and am struggling to calculate lot size on oil and indices based on risking 1% of my account.

Any pointers please?

I will try to answer your question with some basics that you should be able to find on Baby Pips School of Pipsology on position sizing. Let’s say you have a $1,000 account and you decide that you wish to risk no more than 1% of your account on any particular trade. 1% of $1,000 is $10. So the maximum amount you wish to lose is $10.00. Let’s say that you wish to go long the GBP against the USD, you see that the daily ATR is 50 PIPs (50/10,000 = 0.005% of the nominal exchange rate. Say it is GBP = 1.3000 USD. You want to go long for a $10 risk. So you are prepared to lose $10 for 50 PIPs. You enter long at 1.3000 with a stop loss of 50 PIPs that represents $10. So $10/50PIPs is $0.20 per PIP. You set a take profit at 1.3100 for a 2:1 reward to risk ratio, and if the pair reaches GBP1.0000 = USD1.3100, you take 100 PIPs profit, or $20.

Note I did not refer to a lot size here. You don’t need to know how much per lot you are risking - just the $ / PIP. I hope this helps to clear this up. I do not trade oil but to answer your question, the answerer would need to know if it were WTI, Brent or other.

Thanks for the reply but calculators cover currency pairs so for now I don’t need to know the long version on how to calculate.

To place a trade on oil or an indice I really need to understand how to calculate lot size based on risk

Hi,

I will try again. Which oil contract, and which index do you wish to use as examples?

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Hi, the DJ30 with my broker which is I believe in n the DJI on others… that would be a great help thanks and as the others Indices are similar could apply to them.

I can calculate Oil and Gold on my risk calculator so can learn how to do it in paper later on.

Thanks

Hi Paul,

In the example linked below the DJ30 is the Dow Jones industrial average (index). The formula given is that the contract size is 1 unit. The volume is the amount you decide to risk per Dow unit (eg given is that open price is 22,092.20 and closing price is 22,159.70). A Dow unit is 1/22,092.20 of the open price. So if your volume is chosen as $1 per unit, you are risking $1 for every one point move in the Dow index. In the example, you go long at 22,092.20 with one contract, and a volume of $1 per unit. The Dow moves in your favour from 22,092.20 to 22,159.70. The difference is 67.5 units. So your profit is $67.50. If you wanted to set a stop loss to represent a $50 risk, it would be at open price MINUS 50 points, or 22,092.20 minus 50 = 22,042.20. So if the Dow moves 2% down, (98% of 22,092.20 = 21,650, you get stopped out at 22,042.20 and lose your $50. If the Dow moves up by 2%, from open of 22,092.20 to 22,534.04, it moves up by 441.84 points and you sell for a profit of 441.84 x volume per unit $1 = $441.84 profit minus spread. That is 8.8 times your stake.

I don’t know any other way around calculating from first principles. Except that most broker packages would tell you what your risk is in USD when you set a stop loss, so that may be a moot point.

By the way, I have never traded any Dow index or any other than FTSE100 and FTSE250, but I would feel confident to apply the first principles here if I wished to do so.

Good luck with DJ30 trading, just be careful not to miss a decimal point or two. It could be costly.

Thank you! That’s a great help!