position sizing on the forex

[olweiser]

Does anyone use any tools or formula to set this? I've found this tool here, but would love to know exactly how its calculated, or whether you guys think its accurate/fair.

Position sizing in risk management - Mataf.net

 

[Rhody Trader]

Position Size = Total Amount to be Risked / (Trade Pips Risked * Pip Value)

 

[olweiser]

thanks Rhody,
but how do you know the pip value?

 

[foredog]

if you're buying at 148.55 aand your stoploss is at 148.00 then your risking 55pips so just divide how much you're willing to risk on the trade by 55 to give you the size.

eg if yuo have an $11000 account and want to risk 1% = $110 you would trade $2 per pip

110/55=2

 

[intradaybill]

More general equation:

Position size = total amount to be risked/stop loss value

In forex: stop loss value = stop loss in pips X pip value

 

[olweiser]

100,000 account:
trade size is 1000 (1%) / 168 pips (diff between buy in/stoploss) = 5.95 per pip.

1000 / (168 * 5.95) = 1 ??

what have I missed here?

 

[intradaybill]

5.95 is NOT the pip value.

 

[olweiser]

could you elaborate a little?

 

[Rhody Trader]

thanks Rhody,
but how do you know the pip value?

Pip value comes from 2-3 things. One is the pair you're trading. Another is the minimum position size you can trade. If you're trading a pair where the USD is not the quote currency (second listed) then the pip value will also vary by the rate.

Simple Example: If you're trading EUR/USD, and you can trade micro lots (1000 units), then the pip value is $0.10.

More Complex Example: If you're trading USD/JPY at 90, and using micro lots, then the pip value is about $0.11.

 

[foredog]

100,000 account:
trade size is 1000 (1%) / 168 pips (diff between buy in/stoploss) = 5.95 per pip.

1000 / (168 * 5.95) = 1 ??

what have I missed here?

No you've added something.....

if you were trading GBPUSD and spreadbetting you could now bet $5.95 (or probably round up to $6) per pip because if you're stoploss is hit you will have lost 168 * 5.95 = $1000, or 1% of your account.

or in mini lots they would be $0.10 a pip so you would divide your $1000 by the pip value (10cents) to give you 10000 then divide that by your stop distance (168) to give you the number of minilots to trade.

10000 / 168 = 59.52 so you may want to round up or down to 59 or 60.