In this educational article, I will teach you how to apply a position size calculator in Forex and calculate a lot size for your trades depending on a desired risk.
Why do you need a position size calculator?
Even though, most of the newbie traders trade with the fixed lot, the truth is that fixed lot trading is considered to be very risky.
Depending on the trading instrument, time frame and a desired stop loss, the risks from one trade to another are constantly floating.
With the constant fluctuations of losses per trade, it is very complicated to control your risks and drawdowns.
A lot size calculation, however, allows you to risk the desired percentage of your capital per trade, limiting the maximum you can potentially lose.
A lot size is calculated with a position size calculator.
It is integrated in some trading platforms like cTrader. If it is absent in yours, there are a lot of free ones available on the internet.
For the sake of the example, we will apply the one available on babypips web site.
How to Measure Lot Size for Trades?
Let's measure a lot size for the following trade on EURUSD.
Step 1:
Measure a pip value of your stop loss.
It is the distance from your entry level to your stop loss level.
In the example on the picture, the stop loss is 35 pips.
Step 2:
Open a position size calculator
Step 3:
Fill the form.
Inputs: Account currency, account balance, desired risk %, stop loss in pips, currency pair.
Let's say that we are trading with USD account.
Its balance is $10000.
The risk for this trade is 1%.
Step 4:
Calculate a lot size.
The system will calculate a lot size for your trade.
0.28 standard lot in our example.
Taking a trade on EURUSD with $10000 deposit and 35 pips stop loss, you will need 0.28 lot size to risk 1% of your trading account.
Learn to apply a position size calculator. That is the must-use tool for a proper risk management.
