position size and something more...

brax64 · (#1 (**permalink**))

Hello everybody.

I'm experiencing little difficulties about all the math beyond the "money management".

I need your help to do the right calculation about position size and other values...
Your help will be really appreciated!
So we start...

I've available the following data (account with standard lot or 100000 units):
a) account balance
b) leverage
c) risk %
d) pip value
e) stop loss in pips
f) spread

with this numbers I would like to get the following answer:

A) position size (considering possible to open microlots or 0,01 standard lot)
B) margin (the amount the broker require to keep the position open)
C) position real value (amount of the position in $)
D) loss in $ if stop hit

My math is:

A) = (a*c)/((e+f)*d)
B) = 100000*A/b
C) = 100000*A
D) = e*d*A

Please review my calculation ad correct me!!!!

Thanks to everyone that will be so kind to answer!

Brax

brax64 · (#2 (**permalink**))

Cam'on guys... more then 100 readers and no one want gimme an answer...????!!!!!

Pharaoh · (#3 (**permalink**))

First advice. If you have to calculate the available margin, you are trading WAY too heavy.

Here's the way I calculate it:

First, decide % of your account balance you're willing to risk. This is a personal decision, but in my not so humble opinion, anything above 5% is going to introduce you to the concept of a margin call sooner or later.

For example, if you have $5000 in your account and want to risk 2% of that on a trade, then you are putting $100 on the table. Now comes the fun part.

Based on value per pip and desired stop loss, you get to calculate your maximum position size.

For xxx/USD pairs, this is easy. It's $10 per pip if you are trading full lots. If you planned a 10 pip SL (don't forget you'll start out a few pips towards your SL because of spread), you could trade 1 full lot.

Of course, most trades use a larger SL. For a 20 pip SL on a USD pair where you are risking $100 on the trade, your position size would be 1/2 lot ($5 per pip). 25 pips would set your size to 0.4 lots. 100 pips would set you to 0.1 lots.

This article should help:

How to Manage Risk while Forex Trading

I hope this helps.

brax64 · (#4 (**permalink**))

Hi Pharaoh

first of all really thank you for answering; your comment is absolutely correct, and the article that you mentioned very useful, but my question was pretty about the math, I would like to know if the formulas that I've posted are correct or something wrong.

Thanks again Pharaoh

Brax 64

Cyclon · (#5 (**permalink**))

so as to not reinvent the wheel...

Yes - Always Control Position Sizing - ideally risk a percentage like
2 - 3 % of equity, and you will insure that nothing is going to do you in.

That practice controls BOTH fear and greed which we all have.

Here are two calculators by The Forex Project which will let you experiment with the actual numbers:

Position size calculator:
Forex Position Size Calculator

Risk Calculator:
Forex Risk Calculator

The results may be different than what you think.

Cheers,
Cyclon

brax64 · (#6 (**permalink**))

Hi Cyclon

really thank you for answer; I've tried the calculators that you have posted and I got the answer that I was looking for.

Really appreciated!

regards

brax64