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Calculating Position/Risk Sizes

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    Calculating Position/Risk Sizes

    Hey guys. I'm trying to get my grip on position sizing a little bit. How can I calculate my lot size and such so that I know how much I'm risking, or how much each pip would change PnL before entering a trade?

    For a hypothetical example, if I had an account size of $1000, and I wanted to risk 1%, or $10, in a trade, what would all the numbers (amount per pip, lot size, etc.) look like? Thanks.

    #2
    Hi yamr682003,

    Thank you for your post.

    Using an example of USD/JPY

    1st Step: 100000*114.28 = 11,428,000
    100000*114.23 = 11,423,000
    5,000 difference between bid and ask

    2nd Step: Determine Midpoint between bid and ask
    114.28+114.23 = 228.51/2 = 114.255

    3rd Step: Divide the Difference in Japanese yen by the midpoint of the bid/offer
    5000/114.255 = 43.76

    4th Step: Divide the total US dollar difference by the number of pips to the attain the average pip value at the current value.
    43.76/5 = $8.75

    Using these steps you can figure the pip value and then determine how many units to trade based on a percentage of your account.
    Ryan O.NinjaTrader Customer Service

    Comment


      #3
      Hello leocrespo,
      Thanks for your reply.
      100,000 is the size of a full lot.
      BrandonNinjaTrader Customer Service

      Comment


        #4
        Good day Brandon,
        Just to confirm.
        For instance I am trading futures FDAX.
        As per the exchange FDAX - 1 contract- 1 point is 25euros,
        Hence if I have 100000$ account and I am willing to risk 2% - 2000$ I need 25 eur multiply to EUR/USD exchange rate to get the value in dollars and than 2000 divide by value of 1 contract in dollar in order to know available points?
        Is that right?

        Regards

        Comment


          #5
          Hello tatarmalay,
          Thanks for your post.
          That is correct.
          BrandonNinjaTrader Customer Service

          Comment


            #6
            Originally posted by NinjaTrader_RyanO View Post
            Hi yamr682003,

            Thank you for your post.

            Using an example of USD/JPY

            1st Step: 100000*114.28 = 11,428,000
            100000*114.23 = 11,423,000
            5,000 difference between bid and ask

            2nd Step: Determine Midpoint between bid and ask
            114.28+114.23 = 228.51/2 = 114.255

            3rd Step: Divide the Difference in Japanese yen by the midpoint of the bid/offer
            5000/114.255 = 43.76

            4th Step: Divide the total US dollar difference by the number of pips to the attain the average pip value at the current value.
            43.76/5 = $8.75

            Using these steps you can figure the pip value and then determine how many units to trade based on a percentage of your account.
            Hello,
            I would like to know if the leverage (e.g. FXCM = 50:1 on forex) is implicit taken into account in these calculations.

            Thanks for your help!

            Comment


              #7
              Leverage is not included in the calculations that Ryan provided. I would recommend reaching out to your potential broker (FXCM) for more information on leverage.
              Patrick G.NinjaTrader Customer Service

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                #8
                4th Step: Divide the total US dollar difference by the number of pips to the attain the average pip value at the current value.
                43.76/5 = $8.75
                In this example Ryan used 5-pip spread, which is very large. Using Interactive Brokers I will get small spread, like 0.5 or even 0.1 pip. In this case the average pip value would be 43.76/0.1 = $ 437.6? Am I missing something? Anyone please clarify.

                Thank you very much.

                Comment


                  #9
                  You would multiply when the pip number is < 1.

                  43.76 x 0.1 (tenth-pip) = 4.37
                  Patrick G.NinjaTrader Customer Service

                  Comment


                    #10
                    Dear Patrick
                    Does this mean that for the same currency pair, I'll get different pip value from each different forex broker since they all offer different spread size?

                    Thank you.

                    Comment


                      #11
                      'spread size' indicates the distance in price between the ask price and the bid price. This does not change the value or a pip.

                      Since forex is decentralized, it is possible for different forex brokers to have different 'spreads'. Please contact your potential forex broker directly for questions related to spreads and trading.
                      Patrick G.NinjaTrader Customer Service

                      Comment

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