![\"Calculating](\"https:\/\/bpcdn.co\/images\/2016\/05\/senior-newbie-ned.jpg\" "\\"Calculating")
<\/figure>\n\n\n\nA long time ago, back when he was even more of a newbie than he is now, he blew out his account because he put on some enormous positions.<\/p>\n\n\n\n
It was as if he was a gun-slinging cowboy from the Midwest \u2013 he traded from the hip and traded BIG.<\/p>\n\n\n\n
Ned didn\u2019t fully understand the importance of position sizing and his account paid dearly for it.<\/p>\n\n\n\n
He re-enrolled into the\u00a0School of Pipsology\u00a0to make sure that he understands it fully this time, and to make sure what happened to him never happens to you!<\/p>\n\n\n\n
In the following examples, we\u2019ll show you how to calculate your position size based on your account size and risk comfort level.<\/p>\n\n\n\n
Your position size will also depend on whether or not your account denomination is the same as the base or quote currency.<\/p>\n\n\n\n
If your account denomination is the same as the counter currency\u2026<\/h2>\n\n\n\n
Newbie Ned just deposited USD 5,000 into his trading account and he is ready to start trading again. Let\u2019s say he now uses a\u00a0swing trading\u00a0system that trades EUR\/USD and that he risks about 200 pips per trade.<\/p>\n\n\n\n
Ever since he blew out his first account, he has now sworn that he doesn\u2019t want to risk more than 1% of his account per trade.<\/p>\n\n\n\n
Let\u2019s figure how big his position size needs to be to stay within his risk comfort zone.<\/p>\n\n\n\n
Using his account balance and the percentage amount he wants to risk, we can calculate the dollar amount risked.<\/p>\n\n\n\n
USD 5,000 x 1% (or 0.01) = USD 50<\/p>\n\n\n\n
Next, we divide the amount risked by the stop to find the value per pip.<\/p>\n\n\n\n
(USD 50)\/(200 pips) = USD 0.25\/pip<\/p>\n\n\n\n
Lastly, we multiply the value per pip by a known unit\/pip value ratio of EUR\/USD. In this case, with 10k units (or one mini lot), each pip move is worth USD 1.<\/p>\n\n\n\n
USD 0.25 per pip * [(10k units of EUR\/USD)\/(USD 1 per pip)] = 2,500 units of EUR\/USD<\/p>\n\n\n\n
So, Newbie Ned should put on 2,500 units of\u00a0EUR\/USD\u00a0or less to stay within his risk comfort level with his current trade setup. Otherwise, he\u2019d be regressing back to his previous gambling self.<\/p>\n\n\n\n
Pretty simple eh?<\/p>\n\n\n\n
But what if your account is the same as the base currency?<\/p>\n\n\n\n
If your account denomination is the same as the base currency\u2026<\/h2>\n\n\n\n
Let\u2019s say Ned is now chilling in the\u00a0eurozone, decides to trade forex with a local broker, and deposits EUR 5,000.<\/p>\n\n\n\n
Using the same trade example as before (trading EUR\/USD with a 200 pip stop) what would his position size be if he only risked 1% of his account?<\/p>\n\n\n\n
EUR 5,000 * 1% (or 0.01) = EUR 50<\/p>\n\n\n\n
Now we have to convert this to USD because the value of a currency pair is calculated by the counter currency. Let\u2019s say the current exchange rate for 1 EUR is $1.5000 (EUR\/USD = 1.5000).<\/p>\n\n\n\n
All we have to do to find the value in USD is invert the current exchange rate for EUR\/USD and multiply by the amount of euros we wish to risk.<\/p>\n\n\n\n
(USD 1.5000\/EUR 1.0000) * EUR 50 = approx. USD 75.00<\/p>\n\n\n\n
Next, divide your risk in USD by your stop loss in pips:<\/p>\n\n\n\n
(USD 75.00)\/(200 pips) = $0.375 a pip move.<\/p>\n\n\n\n
This gives Ned the \u201cvalue per pip\u201d move with a 200 pip stop to stay within his risk comfort level.<\/p>\n\n\n\n
Finally, multiply the value per pip move by the known unit-to-pip value ratio:<\/p>\n\n\n\n
(USD 0.375 per pip) * [(10k units of EUR\/USD)\/(USD1 per pip)] = 3,750 units of EUR\/USD<\/p>\n\n\n\n
So, to risk EUR 50 or less on a 200 pip stop on EUR\/USD, Ned\u2019s position size can be no bigger than 3,750 units.<\/p>\n\n\n\n
Still pretty simple, eh?<\/p>\n\n\n\n
Well, now it gets slightly more complicated.<\/p>\n\n\n\n
Don\u2019t worry though. We got yo back and we\u2019ll explain everything so it\u2019ll become as easy as baking a cake.<\/p>\n","protected":false},"excerpt":{"rendered":"
To make things easier for you to understand, as usual, we\u2019ll be explaining everything with an example. This is Newbie Ned. A long time ago, back when he was even more of a newbie than he is now, he blew out his account because he put on some enormous positions. It was as if he […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[841],"tags":[],"_links":{"self":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/10013"}],"collection":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/comments?post=10013"}],"version-history":[{"count":0,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/10013\/revisions"}],"wp:attachment":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/media?parent=10013"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/categories?post=10013"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/tags?post=10013"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}