By now, you have already learned the
hard lesson of trading too big, let’s get into learn properly the usage of leverage
using proper “position sizing.”
Position sizing is setting the
correct amount of units to buy or sell of currency pair.
This is one of the most crucial
skills in a FOREX trader’s skill set, in deed.
The traders are “the actual risk managers”
first and foremost, so as you start trading real money, you should be able to
do basic position size calculations in your sleep… or at least after you wake
up, still groggy, and try to trade the NFP report!
To get the position size that will
keep you within your risk comfort level is relatively easy…and we use the
phrase “relatively easy” loosely here. Besides, if Pipcrawler, who can’t tell his pinkies from his toes, can do it, then
you can too!
As you trust on the currency pair
you are trading and your account denomination (is your account in dollars, euros,
pounds, etc??), a step or two needs to be added to the calculation.
We need five pieces of information before we
can get our math on.
These are bellow.
- Account equity or balance
- Currency pair you are trading
- The percent of your account you wish to risk
- Stop loss in pips
- Conversion currency pair exchange rates
These are easy enough right? Let’s
move on to a few examples.
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