Risk Management

Good Afternoon,

I am new to trading and have been studying extensively to try and gain a good basic grounding of knowledge however I am struggling to get my head fully around position sizing.

eg.

USD 5000 account, 1% risk, 200 pip stop trading EUR/USD

  1. 5000 x 1% = 50 USD
  2. 50/200 =0.25 per pip
  3. 0.25 USD x ((10,000 units of EUR/USD)/(USD 1 per pip) = 2500 units of EUR/USD

My question is this, on step 3 where does the 10,000 units come from? why 10,000?

Any help you can give would be much appreciated.

Hi, I understand you trying to figure out what is " unit/pip value ratio " this part “10,000 units of EUR/USD)/(USD 1 per pip”. As you know on the forex market you can use 3 types size, standard lot (100 000 units, 10 USD per pips) mini lot ( 10 000 units 1 USD per pips) micro lot ( 1000 units 1 cent per pips ) for EURUSD. Basically it doesn’t matter which lot type you use, you have to remember to use the value of one pip for each lot size. (use the value formula for standard lot and micro lot, you will get the same result). Regards Greg

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