I have a quick question…basic math…I want to see if I am calculating correctly. I am trying to stick to the 2% trading rule off the balance. If I have a 25,000.00 balance I then should trade only 500.00 of my balance…correct?
So, I am thinking I am shorting myself on bidding units. On a recent trade of USD/CAN here is the following info:
9.71( or is it 9,711) units make 1 Pip USD
I purchased 5000 units
1 Pip then = .5121 usd
my profit would be 28.42
Did I purchase too low? or Am I misunderstanding the 2% rule? I am on the cusp of understanding money management here but I don’t want to sell myself short, it could swing the other way and my losses would be .51 cents per pip, but I do want to make money on this the smart way.
Please let me know…I have been having many successful trades on my demo account but want to nail this down before I go live in two months.
Thank you
When people say they are risking 2% they don’t mean they are taking that 2% and figuring out how much that buys them. It means they are using that figuring out their pip risk for a trade then taking that and applying it to the 2% amount to figure out what the position size is.
Ok I think I understand but can you give an example to help me solidfy the principal. Using my example…
I would really appreciate it. I may not be bidding correctly and want to maximize my gains while minimizing my losses.
OK. We’ll assume that we’re talking about USD/CAD and a 2% on a $25,000 account. That would be, as you noted, a $500 trade risk. Now let’s say the trade you are contemplating has a 20 pip risk (meaning that’s where you would place your stop). I’ll assume that your $9.71/pip figure is correct for a $100,000 position, because I don’t feel like checking right now and it doesn’t really matter. That means 20 pips is $194.20 in risk for a single lot. Take your $500 and divide it by that $194.20 and you get 2.57. That means if you don’t want to risk more than $500, you would trade 2 lots.
Ok I am beginning to see…at any one time I do not want to risk more then a 500 loss to my balance. That means whatever my pip to usd ratio is…I need to figure my stop loss in pips to be less then 500.00. Would I assume then that I can only trade full lots or on a real account can I trade partial lots for less risk? I appreciate your patience…am I headed for the correct understanding in this? So my position is the same as how many units I purchase…100000 units may indeed be at the cost of …lets say $10.00 a pip. I could not lose more then 50 pips then…which would total 500.00 of my balance or 2%…Did I get it?
As for the lots, you can’t trade partial lots per se. If your broker allows for mini (1000 units) or micro lots (10,000 units), though, you can get more specific in your sizing.
It is a bad idea to arbitrarily place stops at a 2% risk of your capital. Just don’t be placing your stops at 2% risk of you capital that wouldn’t make any sense. I use to do it too. But then I tested my strategy, found out like a medium of how many pips against me typically meant the trade was no good and then figured my lot size by that figure. So first figure out a proper stop loss then figure out how big of a position you can take.
Yes I understand that…I have started to do that and I believe that it is a convservative way to trade which will keep me in the game longer. Thank you.
and it doesn’t really matter. That means 20 pips is $194.20 in risk for a single lot. Take your $500 and divide it by that $194.20 and you get 2.57. That means if you don’t want to risk more than $500, you would trade 2 lots.