A common question I have gotten asked over the years is how exactly to allocate position sizing in a Forex Trade correctly? Rightly so, as this can be daunting to those that are new to the concept and for those trying to do online. While there are a number of online tools online that can help with this, there is also an easy way to work out yourself with practice which I recommend to learn. That process once learnt and applied in trading can also make it smoother and quicker than finding that online tool as well.
In the video below I share a simple methodology where I go over how to do the process within minutes.
Above Video – In the Video above let me guide you on how to Allocate Correct Position Sizing in Forex.
Summary – How to do it?
In summary as described in video above, take the allocated risk set from your initial risk amount.
So say as an example using the recommended 2% risk per signal amount would mean in a $1000 dollar account $20 dollars would be your allowed risk per trade. In another example, if say a $10000 dollar account risk per trade amount would be $200 dollars and so on. This is gotten by taking the account size and times by 0.02. So as an example $10000 x 0.02 = $200 dollars.
Then, take that allocated per trade risk amount and then divide by the amount of pips needed to give risk to a trade. So say a trade needs 50 pips risk divide it by 50. If 120 pips divide by 120.
As another example $200 divided by 50 pips risk equals 4 or better said 4 dollars per pip or in units terms 0.4.
As another example $200 divided by 120 pips risk equals $1.66 per pip or better put rounding down to $1.50 dollar per pip or in units 0.15.
It does take a little practice and time to get used to however try it yourself and see how you go.
Important: Be aware that average unit size examples in this post and video are based on the averages for a US dollar based currency Forex account. If your base Forex account currency is a different currency such as Pounds, Australian dollar, New Zealand dollar, etc, then unit sizes will vary accordingly to the conversion.