A good Forex position size calculator should be a part of every Forex traders toolbox. This calculator makes it quick and easy to determine what your position size should be for any given trade.
In this article I’m going to explain why calculating your position size is critical to your success as a trader. I’ll cover the difference between thinking in terms of percentage risked vs. money risked and which is better. Lastly I’ll share the Forex position size calculator I use before every trade.
I wrote an article called, Pips and Percentages Will Only Get You So Far. In it I talk about why fully accepting the risk before putting on a trade is so important. It’s the best way to keep your emotions under control, which is a cornerstone of becoming a profitable Forex trader.
The only way to fully accept the risk is to know how much you’re risking. That’s where a good Forex position size calculator comes in handy.
Using a calculator is also a great way to become comfortable with lot sizing. One of the more challenging aspects of Forex is understanding the different types of lots.
As you become comfortable using the calculator, so too will you become comfortable with micro, mini and standard lot sizing.
I’ll share the calculator I use shortly. But first I want to go through a few basic steps on how to use the tool. The calculator is pretty straight forward, but these steps will help to clarify any initial confusion.
The first thing you'll want to do is select your account currency. This will be whatever currency you have set up with your broker to trade Forex.
This is where you will enter your account size in terms of the account currency you selected in Step 1. So if your trading with $1,000, enter 1000 here.
This is one of the most important steps. This is where you can select your risk percentage. One thing I really like about this Forex position size calculator is that you can swap percentage risked for money risked, which is the way I use this calculator. So if you want to risk $30 on a trade, click the Swap with Money button and then enter 30.
In this step you will enter your stop loss in pips. So if your stop loss is 50 pips from your intended entry, you would enter 50 here.
Next you will select the currency pair you're trading. Another reason I really like this calculator is the wide range of currency pairs available. For this example I've chosen USDJPY.
Last but not least this is where you will enter the ask price of whatever currency pair you selected in Step 5.
Note: If you chose EURUSD or GBPUSD you won't need to do this step when trading a USD account
Once you've completed the six steps above, click the "Calculate" button to see the results. Below are the results using the figures I gave above and a USDJPY ask of 101.50.
The Amount at Risk will show the dollar amount risked. If you calculated by a dollar amount in step 3 this will show as a risk percentage.
The Position Size is the actual number of units you're trading of a particular currency. You won't need to use this number for the majority of trading platforms.
The Standard Lots, Mini Lots and Micro Lots are the values you will need to enter into your trading platform. The one you use depends on your account size. Be sure to speak with your broker if you are unsure.
This was one of the hardest concepts for me to grasp years ago. I figured it was just a different representation and essentially the same thing. It's not!
Well, mathematically they're the same, but in terms of how you perceive the two numbers they couldn't be more different. I wrote a separate post about this topic which I referenced at the beginning of this article, so I won't belabor the topic too much.
The basic idea behind this is that if you only think in terms of percentage risked, you're only satisfying one side of your brain - the logical side. The emotional side, which is what gets us in trouble, is left wanting more. Let me explain...
If I told you, go risk 2% of your account on a EURUSD pin bar trade right now. The first thing your mind registers is that it sounds logical (provided it's a valid setup). Let's be honest, 2% of any account size isn't a huge amount to risk. But what if it is?
What if you have a $50,000 account? Is $1,000 a lot to you? I bet it is, even if you do have $50,000 in disposable money. Ask any millionaire and they'll tell you that $1,000 is a chunk of change. Why? Because their perception of money is different than most - that's why they're a millionaire.
This isn't to say that risking $1,000 or 2% of a $50,000 account is too much. That's not for me to decide. The thing to take away from this is that it all depends on what you're comfortable risking (potentially losing). Are you comfortable losing $1,000 to see if a trade setup works out? That's the question you need to ask yourself before every trade.
The point is that in order to fully accept and understand what you're risking on any given trade, you need to think in terms of money risked. Thinking this way is much more realistic and will satisfy both the emotional side of your brain as well as the logical side.
I hope this article has not only provided you with a great Forex position size calculator to use, but has also opened your eyes to a different way of perceiving risk. Click the button below to start using the calculator.
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