How to calculate the size of a position in Forex

We often hear that the most important factor to build equity and balance in Forex account is the size of the position taken in each trade. The size of the position will determine the fastest and substantial profits that may occur from a single investment.

A novice investor could rely and invest large amounts of money using its experience. One could easily keep polishing strategies and generate huge profits even if the size of the position is not taken into account.

Let’s assume that you deposited $ 5,000 in your account to start investing.

For this example, we will assume that the usual risk per trade is 200 pips. A common rule is to never risk more than 1% of the money available in your account on a single trade. Using funds available in the account and the percentage risk you can afford, you can calculate the amount of USD you will risk:

$ 5,000 * 1% risk = 50 USD

Now we have to divide the net amount by the usual risk to know the value of each pip:

$ 50/200 pips = $ 0.25 per pip

Finally, multiply the value of each pip by the pip relationship of unity on the desired currency pair; for this example we’ll use EUR / USD, and 10,000 units, each pip movement is worth 1 USD:

$ 0.25 per pip * (10,000 units EUR / USD / 1 USD per pip) = 2,500 units of EUR / USD

So expect to buy 2,500 units of EUR / USD or less to stay within the desired risk level. This is considered as if the investor’s account is in the same currency as the second currency in the pair.

There are calculators for Forex size of position. This is one of the most reliable:

http://www.earnforex.com/position-size-calculator