Calculating Position/Risk Sizes

[yamr682003]

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.

[NinjaTrader_RyanO]

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.

[NinjaTrader_Brandon]

Hello leocrespo,
Thanks for your reply.
100,000 is the size of a full lot.

[tatarmalay]

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

[NinjaTrader_Brandon]

Hello tatarmalay,
Thanks for your post.
That is correct.

[MichaelD]

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!

[NinjaTrader_PatrickG]

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.

[thebigarch]

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.

[NinjaTrader_PatrickG]

You would multiply when the pip number is < 1.

43.76 x 0.1 (tenth-pip) = 4.37

[thebigarch]

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.

[NinjaTrader_PatrickG]

'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.