Hi,
Hoping to get help in understanding lot size and position sizing.
For example, if I’m willing to risk $100 on a trade and my stop loss is 111 pips (100 / 111 = 0.90), [B]is my position size 0.9 micro lots or 0.9 mini lots?[/B]
Another example, if I’m willing to risk $200 on a trade and my stop loss is 50 pips (200 / 50 = 4), [B]is my position size 2 micro lots or 2 mini lots?[/B]
How do I determine which one?
Is there a formula to work this out?
Thank you in advance.
Yes, there is a formula.
And there is also a Position Size Calculator, which does all the work for you — no formula needed.
But, before you go any further, you need to go through the School of Pipsology, which is available[I] for free,[/I] right here on this website. That course will answer about 100 of your most basic, newbie questions — like the ones you asked in your post.
By the way, the answers to your questions are as follows:
[B]If the quote currency in the pair you are trading matches your account currency[/B] (for example, your account currency is USD, and you are trading the EUR/USD, the GBP/USD, etc.), then —
In your first example, the answer is 9 micro-lots (which equals 0.9 mini-lots).
In your second example, the answer is 40 micro-lots (which equals 4 mini-lots).
[B]If the quote currency in the pair you are trading does not match your account currency,[/B] then pip-values would be different from the examples above, and the answers to your two examples would be different.
But, put all this aside for now, until you have gotten a basic forex education, by diligently studying the School of Pipsology.
.
Thanks Clint. I have read parts of school of pipsology however it is very long and too much to retain. I also found your other answer post to similar questions helpful.
You’re using the forum well, and beneficially, then.
It’s really important to bear in mind the extremely low success-rates among retail forex traders, and to be aware that for aspiring traders, choosing “by whom to be guided” is probably the single most important aspect of trying to learn from forums. It stands to reason, given both the overall participant success-rates of the activities being discussed and the often concealed self-promotional motivations underlying some of the posting, that there’s going to be an awful lot of misunderstanding and misguided concepts discussed as well. You’ve identified a good person to read.
That’s very much a [I]bare minimum[/I] of what you need to understand fully, before trading. It’s a long learning-curve.