Hey guys! I’m here to ask you about position sizing. Here is the page I’m confused about:
So my problem is that when we already know the risk to pip value, and we arrive to the last step:
And finally, multiply by a known unit-to-pip value ratio:
JPY 42.50 per pip * [(100 units of USD/JPY)/(JPY 1 per pip)] = approximately 4,250 units of USD/JPY
Why is it only 100 units of USD/JPY and why is it JPY 1 per pip?
I’m really confused about position sizing rn and I could just use the calculator provided by babypips, but I want to understand what, why and how it works
For the wider community of traders, isn’t there a simpler way of calculating position size? i.e. derived from £ or $ at risk from the stop-loss being hit? This can easily be expressed as a percentage of account capital at risk, which is the usual metric for risk management - many traders aim to risk not more than 2% per trade.
Hi @BabyGooat , assuming that in the school of pipsology chapter on position sizing you were ok to understand what came before your USDJPY example. I think what throws you off here is the known “unit-to-pip value ratio”. Higher up on that same education page there was an example for trading EURGBP and they used 10k units for GBP1 (1 pound per pip for each mini lot traded). This ratio works for each counter major currency (the one one the right of the pair symbol) EXCEPT for JPY… when you have JPY as counter currency the known ratio is only 100 units (not 10k units) for JPY1 per pip. Why? look at you charts, for most pairs the price shows 5 decimals (with the 4th being pips and the 5th being so called ‘pipettes’) but the JPY pairs show only 3 decimals (2nd is pips and 3rd pipettes). JPY denomination value compared to other majors is so small that 4 or 5 decimals would become near meaningless, hence the annoying exception.
So, most counter currencies will mean 1 per pip for mini lots (10k units) and 10 per pip for standard lots (100k units), but for JPY it’s 1 per pip for 100 units, 100 per pip for 10k units, 1000 per pip for 100k units. I hope I got that right and that it makes sense.
best wishes