Please tell me I'm calculating my risk correctly

Ok, I’ve been digging the net on how to properly manage my risk and to someone relatively new to forex - my head hurts! So please tell me if I’m doing it right.
I’m doing this on MT4 with the Volume = 1.0 (1lot)

My demo has 1000 EUR balance with set leverage 1:400

Buy 1 Lot EURUSD at 1.4723
Buy (+) €100,000 Sell (-) $147,230
Sell 1 Lot EURUSD at 1.4796
Sell (-) €100,000 Buy (+) $147,960Sell (-) €100,000 Buy (+) $147,960
= +$730

1 Lot EURUSD pip value = $10
Buy at rate 1.4723
Sell at rate 1.4796
73 pips profit at $10 per pip
= + $730

^ This is what my broker sets as an example so 1 lot = 100 000

I want to risk 2% of my account on EUR/USD(for 1 trade). 2% of 1000 is 20.
I have set Stop Loss for 50 pips. 20/50=0,4 EUR per pip.

1 lot = 100 000
0.1= 10 000
0.00001 = 1
0.000004 = 0.4 EUR (per pip)

Is this all or I have to calculate the leverage aswell? How about JPY with another currency pips there are different right?

You’ve worked it out correctly. And it is indeed true that with pairs that don’t have USD as the quote currency (listed second in the pair - XXX/USD) the pip values will vary.

You are mixing two different situations here. Let’s try to untangle them.

[B]First situation.[/B]

You have €1,000 in your account. You are trading 1 standard lot (100,000 units) of EUR/USD. Your entry price is 1.4723. And you have a 50-pip stop-loss. [B]What is your risk?[/B]

If your trade goes against you, each pip will cost you $10. At a EUR/USD price of 1.4723, $10 = €6.7921 (rounded off). A 50-pip move against you will cost 50 x €6.7921 = €339.61. And your risk percentage is €339.61 ÷ €1,000 = [B]33.96%[/B]

[B]Second situation.[/B]

Same account balance, same pair, same entry price, and same stop-loss. But, this time you want to limit your risk to 2% of your account. [B]What position size will accomplish this?[/B]

As you have stated, 2% of your account is €20. We’ve already calculated (above) that a 50-pip move to your stop-loss would cost you €339.61, if your position size is 1 lot. So, €20 ÷ €339.61 gives us the portion of 1 standard lot corresponding to a cost of €20 (if your position runs to your stop-loss).

€20 ÷ €339.61 = 0.05889 lot, which is [B]5,889 units of currency.[/B]

If your account allows you to trade in unit amounts, then the correct position size is 5,889 units.

If your account allows you to trade in micro-lot amounts (multiples of 1,000 units), then the correct position size is 5 micro-lots (unless you choose to adjust your risk percentage up slightly).

Let’s see what would happen to your risk percentage, if you increase your position size to 6 micro-lots — 6 ÷ 5 x 2% = 2.4%. If you are comfortable increasing your risk percentage to 2.4%, then you can trade 6 micro-lots (6,000 units of currency) in this trade.

It’s good to know how these things are calculated. But, you don’t have do all this math every time you want to plan a trade. There are Position Size Calculators for this task. Babypips has a good one here —

Position Size Calculator: Free Online Forex Position Sizing Calculator.

I just used it, with the metrics from your trade above. And, in less than 10 seconds, I got the result (5,889 units, same as above). Notice that I didn’t have to use the pip-value in this calculation. If you want (or need) the pip-value, there’s a calculator for that, as well —

Pip Calculator: Free Online Forex Pips Calculation Tool for Traders.

You asked about calculating leverage. In general, if you are using prudent risk management to determine your position size in every trade, you can simply forget about the actual leverage you are using. Your actual leverage will take care of itself. But, if you want to calculate it, it’s easy to do.

Actual leverage used = Position size (in EUR) ÷ Account balance (in EUR).

So, for the first situation described above —

Actual leverage used = €100,000 ÷ €1,000 = 100:1

(which I hope you know is WAY too much leverage for any newbie to even consider).

For the second situation described above —

Actual leverage used = 5.889:1 (for a position size of 5,889 units),

or 6:1 (for a position size of 6,000 units).

Lastly, returning to the topic of pip-values — for pairs with different cross-currencies, pip-values are different. So, for example, EUR/USD, EUR/GBP, EUR/JPY, etc., all have different pip-values. If you need these pip-values, use the Pip-Value Calculator.


Well, so far so good. I guess you have done perfect calculation mate. In case you need any future help, do let us know.

Woah, thanks Clint! The €20 ÷ €339.61 = 0.05889 really cleared it up. I knew about the calculators but I’m the kind of person that wants to know how something works before using it. I placed a few differnet trades today and the leverage seemed to take care of itself aswell. I’ll experiment some more with different currencies.