We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Mixed
GBP/USD
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Mixed
Oil - US Crude
Mixed
Bitcoin
Bearish
More View more
Real Time News
  • German Bund Yields Update: 2-Year: -0.639% 3-Year: -0.651% 5-Year: -0.548% 7-Year: -0.480% 10-Year: -0.290% 30-Year: 0.228%
  • The $AUD erased half of November’s down move in a mere two days but the dominant trend bias continues to favor weakness ahead. Get your market update from @IlyaSpivak here:https://t.co/ShYksfNXyS https://t.co/OVhyNgLRn5
  • We were almost there, but the $SPX fell short of a >1.0% daily change. That raises the tally to 39 consecutive trading days without a climb or fall of even a moderate measure https://t.co/ibt82dBGmh
  • En español: El oro tropieza y se precipita en caída libre. ¿Qué explica las pérdidas del metal dorado y la alta volatilidad en los mercados financieros? #XAUUSD #trading $gold https://t.co/Hdsd0z1qih https://t.co/WKnGaABVS8
  • Forex Update: As of 21:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.35% 🇦🇺AUD: 0.17% 🇯🇵JPY: 0.14% 🇨🇭CHF: -0.30% 🇪🇺EUR: -0.38% 🇨🇦CAD: -0.59% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/lrSRyCHLjw
  • Martin Guzman named as Argentina's new Minister of Economy $USDARS
  • YouGov poll finds 52% for Johnson winning debate vs 48% for Corbyn $GBPUSD
  • Commodities Update: As of 21:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: -0.15% Gold: -1.07% Silver: -2.28% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/MUWxfLEsGn
  • $GBPJPY: Any close above 143.19 could embolden more market’s participants to push towards the vicinity of 144.80-94. Get your technical analysis from @malkudsi here:https://t.co/eYpmPx1pKg https://t.co/7g2rhlfzaB
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 98.09%, while traders in France 40 are at opposite extremes with 78.67%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/ZLq5jhfPrP
How to Determine Your Position Size

How to Determine Your Position Size

2014-04-09 19:00:00
Walker England, Forex Trading Instructor
Share:

Talking Points:

  • Determining trade size is critical to risk management
  • Larger lot sizes increase profit and losses per pip
  • Use the Risk Management App to simplify calculations

Many Forex scalpers have plans for stop placement, but often forget about position size! This can be devastating to a traders account in the event that too much leverage is used when an inappropriate lot size is selected. The good news is this issue can be avoided with a few easy steps and calculations! Today we will review how to select the correct lot size for your trading plan.

Determine Stop Placement

The first step in determining lot size is to plan your stop placement. While this may sound counter intuitive, this step must be taken before we proceed. There are virtually limitless ways to determine where to place your stops which include finding market swings, using volatility indicators, or selecting an arbitrary value. Regardless of how you decide to place your stop, once set, remember the value of pips your stop is away from your entry. Keep this value handy as we move on to the next step!

Learn Forex: AUDNZD with a sample 15 Bar Stop

How-to-Determine-Your-Position-Size_body_Picture_3.png, How to Determine Your Position Size

Determine Risk %

The next task is to determine how much you wish to risk as a percentage of your account. Normally traders are recommended to employ the 1% rule. This means that traders should never risk more than 1% of their account balance on any one trading idea. That means using the math above, if you are trading a $10,000 account you should never risk more than $100 on any one positions. Keep this total in mind as well, as we work to our final goal of determining the appropriate position size.

How-to-Determine-Your-Position-Size_body_Picture_2.png, How to Determine Your Position Size

Evaluate Pip Cost and Lot Size

Next we will need to determine pip cost. Pip cost by definition is how much you stand to earn or lose per pip, as a trade moves in and out of your favor. This number becomes critical when we begin to evaluate trade size and risk on an individual position, because the larger the position we trade the more we stand to lose per pip. So how big should our trade size be?

The key is to take your total risk (1% of Balance) and divide this value by the number of pips you are risking. The result is the value you should be risking per pip to meet this requirement. Traders can then adjust their lot size to fit the pip cost needed. The example above shows a trade with a sample $10,000 balance. If we wanted to risk $100 (1% of balance) on a 10 pip stop, we would need to use a 100k trade size. If we lose $10 a pip for a 10 pip stop loss this puts our total loss at $100 or 1% of our $10,000 balance.

How-to-Determine-Your-Position-Size_body_Picture_1.png, How to Determine Your Position Size

Risk Management App

Now that you know how to calculate your proper trade size, let’s simplify the process. FXCM has an application available for the Marketscope 2.0 charting software designed to help determine how much risk is being assumed on any one particular trade. Once added to your chart, the FXCM Risk Calculator, as depicted above, has the ability to help a trader calculate risk based off of trade size and stop levels.

We walk through the application, as well as how to manage risk in several videos embedded into the brainshark medium. After clicking on the link below, you’ll be asked to input information into the ‘Guestbook,’ after which you’ll be met with a series of risk management videos along with download instructions for the application.

Risk Management AppDownloadand Review via Brainshark

---Written by Walker England, Trading Instructor

To contact Walker, email instructor@dailyfx.com. Follow me on Twitter at @WEnglandFX.

To be added to Walker’s e-mail distribution list, CLICK HERE and enter in your email information

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.