How does Position Size Calculator Works?
Here is a general formula for calculating Position Size:
STEP 1: The first step is to determine your account risk. This means the percentage of your capital that you are willing to risk on a trade.
For example, you have $ 10,000 in your account. You want to risk 1 %. So, your account risk will be $ 100 (0.01 x 10,000).
STEP 2: Next determine the trade risk, that is the difference between the entry price and the stop-loss price. For example, you are trading the pair EUR/USD. You have set the entry price at 1.2 and stop loss at 1.19. Your trade risk is 100 pips
STEP 3: Now calculate the value per pip of the currency pair you are trading. You plan to trade a standard lot of 100,000 units of the selected currency pair. The value per pip will be $ 10. If you trade a smaller lot of 10,000 units of the selected currency pair, the value per pip will be $ 1.
STEP 4: Next, if the account denomination is the same as the quote currency, divide your account risk by your trade risk and multiply by the value per pip. This will give you the position size in units.
For example, if your account is in USD and you trade EUR/USD, your position size is ($ 100 / 100 pips) x 10 USD = 10,000 units.
STEP 5: Next, if your account denomination is the same as the base currency, divide your account risk by your trade risk and divide by the value per pip.
For example, if your account is in EUR and you trade EUR/USD, your position size is (100 EUR / 100 pips) / 10 USD = 1,000 units.
STEP 6: In case your account denomination is different from both the base and quote currency, you need to convert your account risk to the quote currency first. Once you have done that only then you can proceed with the above-mentioned steps. Let’s take an example, if your account is in GBP and you trade EUR/USD, you need to multiply your account risk by the GBP/USD exchange rate, then divide by your trade risk and multiply by the value per pip.
For example, if GBP/USD is 1.4000, your position size is (100 GBP x 1.4000 / 100 pips) x 10 USD = 14,000 units.
Why use Position Size Calculator?
Position size calculator helps assess trade values. Position size calculator is a tool that helps traders to calculate the size of the position in units and lots to accurately manage their risks. It is one of the most important tools for risk management.
What is Trade Risk?
Trade risk is the link between your entry-level and stop-loss levels in a trade. When you fix a stop-loss at a specific price, and the prices break the stated point, there is an action to stop-loss. And your trade position will reduce. This is important to fix the correct position size.
