Need help with trade/position sizing.

Hello everyone,

First of all:

Wish you a Happy, Successful and Profitable New Year 2008

I would like to know how to adjust my trade position. I have a demo account with Marketiva and they do not trade in specific lots, rather, in units like 1, 10, 157, - anything you specify. They have a 1% margin requirement.

Recently (yesterday), I demo traded to have an idea but I was not able to understand the calculation. My trades were:

1. Short 1000 units of USD/CHF @ 1.1262, closed @ 1.1272 = 10 pips || Loss = 0.88730

2. 100 quantity of USD/CHF worth in US$?? (USD/CHF @ 1.1260)??
= one pip’s value is $0.008878

Suppose my account (total) float is US$ 1000, Fixed risk % = 5 % and Stop Loss = 30 pips.

• How do I calculate value of a pip in US$?
• How do I calculate my trade size? (Amount/Quantity of instrument to be traded)?

Assume that my on a particular trade:
- Total risk in amount would be US$ 50
- Total risk in terms of pips would be 30 pips

How do I calculate my trade size or ($) quantity to trade in : a) USDCHF and b) EUR/USD ??

Thank you for your time,

------
Yes, I forgot to mention one more thing: Leverage - I use 1:1 || Can you tell me to use it more correctly?

Nice Basic Question, mostl of the traders do not care toknow how it is calculated .

How to Calculate Pip Values

A "pip" is the smallest increment in any currency pair. In EURUSD, a movement from .8941 to .8942 is one pip, so a pip is .0001. In USDJPY, a movement from 130.45 to 130.46 is one pip, so a pip is .01. How much in dollars is this movement worth, for example, per 10,000 Euros in EURUSD? How much is one pip worth per 10,000 Dollars in USDJPY? We will refer to the size, in this case 10,000 units of the base currency, as the "Notional Amount". The formula for calculating a pip value is therefore:

(one pip, with proper decimal placement/currency exchange rate) x (Notional Amount)

Using USDJPY as an example, this yields:

(.01/130.46) x USD10,000 = $0.77

or 77 cents per pip

Using EURUSD as an example, we have:

(.0001/.8942) x EUR10,000 = EUR 1.1183

But we want the pip value in USD, so we then must multiply EUR1.1183 x (EURUSD exchange rate):

EUR 1.1183 x .8942 = $1.00

This is in fact a phenomenon you will see with any currency in which the currency is quoted first (such as EURUSD, GBPUSP, or AUDUSD): the pip value is always $1.00 per 10,000 currency units. This is why pip (or "tick") values in currency futures, where the currency is quoted first, are always fixed.

Approximate pip values for the major currencies are as follows, per 10,000 units of the base currency:

USD/JPY: 1 pip = $.77; In other words a change from 130.45 to 130.46 is worth about $.77 per $10,000.

EUR/USD: 1 pip = $1.00; .8941 to .8942 is worth $1.00 per 10,000 Euros.

GBP/USD: 1 pip = $1.00; 1.4765 to 1.4766 is worth $1.00 per 10,000 Pounds.

USD/CHF: 1 pip = $.59; 1.6855 to 1.6866 is worth $.59 per $10,000.

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How to Calculate Leverage, Margin, and Pip Values in Forex

Although most trading platforms calculate profits and losses, used margin and useable margin, and account totals, it helps to understand how these things are calculated so that you can plan transactions and can determine what your potential profit or loss could be.
Leverage and Margin

Most forex brokers allow a very high leverage ratio, or, to put it differently, have very low margin requirements. This is why profits and losses can be so great in forex trading even though the actual prices of the currencies themselves do not change all that much—certainly not like stocks. Stocks can double or triple in price, or fall to zero; currency never does. Because currency prices do not vary substantially, much lower margin requirements is less risky than it would be for stocks.

Most brokers allow a 100:1 leverage, or 1% margin. This means that you can buy or sell $100,000 worth of currency while maintaining $1,000 in your account. Mini-accounts can have leverage ratios as high as 200.

The margin in a forex account is a performance bond, the amount of equity needed to ensure that you can cover your losses. Thus, you do not buy currency with borrowed money, and no interest is charged on the 99% of the currency’s value that is not covered by margin. The margin requirement can be met not only with money, but also with profitable open positions. The equity in your account is the total amount of cash and the amount of unrealized profits in your open positions minus the losses in your open positions. Your total equity determines how much margin you have left, and if you have open positions, total equity will vary continuously as market prices change. Thus, it is never wise to use 100% of your margin for trades—otherwise, you may be subject to a margin call.

So if you buy $100,000 worth of currency, you are not depositing $1,000 and borrowing $99,000 for the purchase. The $1,000 is to cover your losses. If the equity in your account drops below the margin requirement, then you will have to deposit more money, or the broker will liquidate your positions. Thus, buying or selling short currency is like buying or selling short futures rather than stocks.

Leverage is inversely proportional to margin:

Leverage = 1/Margin = 100/Margin Percentage
Margin Percentage = 100/Leverage

To calculate the amount of margin used, multiply the size of the trade by the margin percentage. Subtracting the margin used for all trades from 100 yields the amount of margin that you have left.

To calculate the margin for a given trade:

Margin Requirement = Current Price x Units Traded x Margin
Example—Calculating Margin Requirements for a Trade

You want to buy 100,000 Euros with a current price of 1.35 USD, and your broker requires a 1% margin.

Required Margin = 100,000 x 1.35 x 0.01 = $1,350.00 USD.
Pip Values

In most cases, a pip is equal to .01% of the quote currency, thus, 10,000 pips = 1 unit of currency. In USD, 100 pips = 1 penny, and 10,000 pips = $1. A well known exception is for the Japanese yen (JPY) in which a pip is worth 1% of the yen, because the yen has little value compared to other currencies. Since there are about 120 yen to 1 USD, a pip in USD is close in value to a pip in JPY. (See Currency Quotes; Pips; Bid/Ask Quotes; Cross Currency Quotes for an introduction.)

Because the quote currency of a currency pair is the quoted price (hence, the name), the value of the pip is in the quote currency. So, for instance, for EUR/USD, the pip is equal to 0.0001 USD, but for USD/EUR, the pip is equal to 0.0001 Euro. If the conversion rate for Euros to dollars is 1.35, then a Euro pip = 0.000135 dollars.
Converting Profits and Losses in Pips to USD

To calculate your profits and losses in pips to your native currency, you must convert the pip value to your native currency. The following calculations will be shown using USD as an example.

When you close a trade, the profit or loss is initially expressed in the pip value of the quoted currency. To determine the total profit or loss, you must multiply the pip difference between the open price and closing price by the number of units of currency traded. This yields the total pip difference between the opening and closing transaction.

If the pip value is USD, then the profit or loss is expressed in USD, but if USD is the base currency, then the pip value must be converted to USD, which can be found by dividing the total pip profit or loss by the conversion rate.

This calculation shows how it is calculated ,
Tho it is outdated now , i am posting a screen chot of pip value for each pair here .
These values are tellig you that you will lose/gain per pip if you are trading a 100000$ lot .

Hope this is helpful for you.

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Hello TheHallmark,

WOW !! That was just brilliant !! I highly appreciate your time and effort to clarify the concept.

But I say, it’s not clear to me (bcoz I’m a bit late digester)

I’m still in doubt, … It’s not clear to me:

Suppose my account (total) float is US$ 1000, Fixed risk % = 5 % and Stop Loss = 100 pips.

• How do I calculate my trade size? (Amount/Quantity of USDCHF to buy/sell)?

Assuming that on a particular trade:
- Total risk in amount would be US$ 50 (= 5%)
- Total risk in terms of pips would be 100 pips

So, I want to risk US$ 0.5 or 50 cents per pip for USDCHF @ 1.1550

Now tell me, what amount should I purchase? Show me the calculation in easy and short way please. [My broker Marketiva doesn’t have lots, instead I need to trade in units]

How do I calculate my trade size or ($) quantity to trade in : a) USDCHF @ 1.1550 and b) EUR/USD @ 1.4360 ??

Please show me a short and sweet method of calculation.

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I would like to clarify one more doubt:

Reference article:


Your risk per a trade should never exceed 3% per trade. It's better to adjust your risk to 1% or 2%
We prefer a risk of 1% but if you are confident in your trading system then you can lever your risk up to 3%

1% risk of a 100,000$ account = 1,000$

You should adjust your stop loss so that you never lose more than 1,000$ per a single trade.

If you are a short term trader and you place your stop loss 50 pips below/above your entry point.
50 pips = 1,000$
1 pips = 20$

The size of your trade should be adjusted so that you risk 20$/pip. With 20:1 leverage, your trade size will be 200,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 10,000$ = 10% of your balance.

If you are a long term trader and you place your stop loss 200 pips below/above your entry point.
200 pips = 1,000$
1 pip = 5$

The size of your trade should be adjusted so that you risk 5$/pip. With 20:1 leverage, your trade size will be 50,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 2,500$ = 2.5% of your balance.



= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =

“If you are a short term trader and you place your stop loss 50 pips below/above your entry point.
50 pips = 1,000$
1 pips = 20$”

= No doubts, clear till this point. Now here is my indigestion:

“The size of your trade should be adjusted so that you risk 20$/pip. With 20:1 leverage, your trade size will be 200,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 10,000$ = 10% of your balance.”

#> How do I adjust (say calculate) my trade size?

= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =



Thank you,

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Hello TheHallmark,

WOW !! That was just brilliant !! I highly appreciate your time and effort to clarify the concept.

But I say, it’s not clear to me (bcoz I’m a bit late digester)

I’m still in doubt, … It’s not clear to me:

Suppose my account (total) float is US$ 1000, Fixed risk % = 5 % and Stop Loss = 100 pips.

• How do I calculate my trade size? (Amount/Quantity of USDCHF to buy/sell)?

Assuming that on a particular trade:
- Total risk in amount would be US$ 50
- Total risk in terms of pips would be 100 pips

So, I want to risk US$ 0.5 or 50 cents per pip for USDCHF @ 1.1550

Now tell me, what amount should I purchase? Show me the calculation in easy and short way please. [My broker Marketiva doesn’t have lots, instead I need to trade in units]

How do I calculate my trade size or ($) quantity to trade in : a) USDCHF @ 1.1550 and b) EUR/USD @ 1.4360 ??

Please show me a short and sweet method of calculation.

==================================================
I would like to clarify one more doubt:

Reference article:


Your risk per a trade should never exceed 3% per trade. It's better to adjust your risk to 1% or 2%
We prefer a risk of 1% but if you are confident in your trading system then you can lever your risk up to 3%

1% risk of a 100,000$ account = 1,000$

You should adjust your stop loss so that you never lose more than 1,000$ per a single trade.

If you are a short term trader and you place your stop loss 50 pips below/above your entry point.
50 pips = 1,000$
1 pips = 20$

The size of your trade should be adjusted so that you risk 20$/pip. With 20:1 leverage, your trade size will be 200,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 10,000$ = 10% of your balance.

If you are a long term trader and you place your stop loss 200 pips below/above your entry point.
200 pips = 1,000$
1 pip = 5$

The size of your trade should be adjusted so that you risk 5$/pip. With 20:1 leverage, your trade size will be 50,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 2,500$ = 2.5% of your balance.



= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =

“If you are a short term trader and you place your stop loss 50 pips below/above your entry point.
50 pips = 1,000$
1 pips = 20$”

= No doubts, clear till this point. Now here is my indigestion:

“The size of your trade should be adjusted so that you risk 20$/pip. With 20:1 leverage, your trade size will be 200,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 10,000$ = 10% of your balance.”

#> How and why shud 'This trade will require 10,000'?

= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =



Thank you,

Hi forget the complex calcualtions .
You are trading with M'iva

They give you a 1/100 leaverage .
A/c size Say 1000$
Risk on any trade 5 %
SO you are ready to loose max 50 $ on a trade . and your sl is 100 pips
SO you can book a trade for 5000 Units max .

For simplyifying the calculatiuons take 1 pip differnce equal to 1 $ in the above example .

Do if the trade goes against you by 100 pips , you will be stopped out.

If your total risk is 5 % for no of trades , just devide them within 5000 units on marketiva.

ie you can trade max five pairs at a time with 1000 units and a 1000 pips sl
OR you can trade 10 Pairs for 500 units or
2 paits for 2500 units.


Hope it clears your doubts

Btw , i am not trading with M'iva , i feel they are not ..............



Moreover to make it more simpler i am attaching one position size calculator here for you . Just for simplification purpose , take 1 $ a pip for 10000 units on any pair except EURGBP for this pair it will be 2 $ a pip

When you are done with dowmload and installation, select "fixed percent risk " model on money management method and fill in required values.
And you will get your posn size instantly.


ENJOY AND HAPPY TRADING

That's correct, BUT !!

"..1 pip differnce equal to 1 $ in the..""

If I agree to take a max loss of $50 for 100 pips, then:

100 (pips) = $50

Above is my risk, am I correct?
So,

1 pip = $50 / 100 (pips) = $0.5

1 pip shud be $0.5, Then only if I loose 100 pips I take a loss of $50.

Let me know if I am wrong.

# Yes, plz feel free to let me know any issues with M'iva ... I shud be aware of issues.

# about the MM Calculator which you have provided, I wud like to know:

- In instrument, shud I select 'leverage' of how much?
I do not want any levg, because it tends to make me loose more than I agree.

- What do I put in the "Price $" field? (is it the bid price)

- What do I put in the "Stop $" (I guess it wud be the SL)

# Can you suggest to me if leverage cud be used in a (positive) manner so that it does not make me loose (in case my trade goes wrong) MORE than what I agree to?

Thank you,

Hello,

TheHallMark,

Thank you for your replies. After little bit of more gOOgling, I found an article which specified exactly what I was looking for (Short n sweet):

Stock XYZ is trading at Rs.25 per share
Portfolio size of Rs.10,000
Risk Model of 3% per trade (due to a small account)
The stop loss is 25%

Risk(in Rs. amount) will be Rs.300 = (Rs.10,000*3%)
Amount to Trade at 25% stop: Rs.1,200 = (Rs.300 / 25%)
Shares to be bought: 48



I hope, the above piece of information would be useful in future for anyone looking for information about "trade/position sizing"

Thanks,