When trading forex, traders will know that size matters. Making your trading capital as substantial as possible is commendable. Yet, what’s more vital is how much of those funds you allocate for every trade; this is where position sizing comes into the picture.
Learning to position size forex pairs is an integral part of money management. One reason many people struggle to maintain consistency is not understanding position sizing.
Bruce Kovner once said, “Novice traders trade 5 to 10 times too big. They are taking 50 to 10 percent risk on a trade they should be taking 1 to 2 percent on.”
You should never blindly execute an order with an arbitrary lot size. Therefore, learning about position sizing and how to use a position size calculator app is essential; your trading account will thank you for it.
What is position sizing in forex?
It goes without saying that one must understand the concept of position sizing before using a forex position calculator. When you trade any forex pair, you buy or sell particular units of the base currency.
For instance, the base currency in USD/JPY is USD. A buy order here would represent purchasing a certain amount of US dollars for Japanese Yen, while a sell order would mean selling a specific amount of the Yen for the US dollar.
We measure these units according to contract or lot sizes, for which we have four:
Each unit for every pair has a quantifiable monetary value (for more information on this concept, check out our guide on pips). Fortunately, our position size calculator offers how much you risk per trade according to various currencies.
How to position size in forex
Each pair in FX carries a different weight. One mistake traders make is to calculate position size in the same amount of units regardless of the pair. In other words, they use the same lot size each time, which can lead to massive losses.
A standard lot on EUR/USD won’t be worth the same as the same lot on GBP/USD or even GBP/AUD. Thus, you should treat each trade differently by manually calculating the size every time.
Luckily, an FX position size calculator was designed for this job. Before using it, you should determine how much you plan to risk on a particular trade. Many trading experts recommend between 1-3%.
This percentage allocation means you can withstand any potential losing streaks and retain enough margin for future positions. For instance, let’s assume you had a $1000 account and planned to risk 2% per trade.
This means you aim to lose $20 and nothing for every order. Next, you will decide on the size of your stop, which traders should always implement.
With this information, you can align our forex position calculator according to the dollar value and stop loss pip distance.
Lastly, pay careful attention when you are inputing the lot size in your trading platform’s order ticket. It is easy to make a mistake by adding an unwanted multiplier or using an incorrect digit. So, double-check each time.
For a bonus tip, avoiding one-click trading is preferable, even if you’re a scalper or day trader that prioritises the fastest execution. This prevents a rare but potential situation where the price reverses quickly and adversely against you without a stop loss placed.
The benefits of using our forex position sizing calculator
It only takes a minute to use a position size calculator in forex. Yet, this little time can save a trader from a massive drawdown or, worse, losing their entire trading capital. Practising money management is what separates the pros from the amateurs.
Correct position sizing, in line with your trading plan, is how you maintain manageable losses and ultimately grow your account.
This tool is not an MT4 position size calculator. It works with any browser, meaning there is no need to download anything. All you need to know is: account currency, balance, risk percentage and stop loss size.
Input all this data into the position size calculator, and voila, the correct lot size pops up. Best of all, this tool is free!
Forex has long moved away from the offices of corporations and big banks. Nowadays, even cash-strapped, stay-at-home folks can invest in the markets. However, understand that your capital is your oxygen. Use our FX position size calculator so that you keep your account balance intact.