How to calculate the size of a deal in the Forex market?
For a Forex trader, the size of a trade or position generates profits that he or she makes in a larger range than the exit and entry during a Forex trading day, even if a trader has a better Forex trading strategy, whether the trade size is too small or too large, he or she makes profits in a larger range than the exit and entry during a Forex trading day, is taking a risk. A trader should avoid taking too much risk because in this case he or she will lose all money.
What is a Forex lot?
A Forex lot is the name given to the position size in each trade. Micro lots consist of 1000 units of currency, mini lots consist of 10,000 units, and standard lots consist of 100,000 units. The size of a trader's position depends on the size and type of the lot that is bought or sold in the course of trading. There are 2 types of risks for traders: account risk and trade risk. All these factors are taken into account when determining the correct position size, regardless of market conditions, trading strategy or settings.
Risk limits for each trade
Most traders set risk limits in dollars or percentage for each trade, which is the most important step in determining the size of a currency position, so many sizes are calculated simply and usually this amount is only 1% of the maximum risk for their trading account, professional and experienced traders. Other trading parameters may vary from one trade to another, but most traders maintain a certain percentage of their risk in a Trade, but when the limit is exceeded by 1%, the amount of risk in a Trade may decrease. (The maximum risk per trading position should be 1-2%).
Pip means a percentage point of price, or a percentage point in percentage, which is the smallest unit of measurement in which the price of a currency changes. If you are looking at a currency pair, pips would be equal to 0.0001 or 100 percent. If the currency pair contains the Japanese yen, pips will be equal to 1 percentage point or 0.01. Some brokers display prices with additional decimal places and this fifth decimal place is called pips. In the case of the Japanese yen, the pip is the 3rd digit. The pip risk for each trade is calculated as the difference between the point at which the stop loss order was placed and the entry point.
A stop loss closes a trade when it loses a certain amount. It is used by traders to ensure that losses do not exceed the risk of losing the account. The level of stop loss also depends on the pip risk of a particular trade. Volatility and strategy are among the factors that determine pip risk. Traders usually set the stop loss as close to the entry point as possible, but if it is too close, the trade may be completed before the expected change in the exchange rate occurs.
Value in pips
In a traded currency pair, the second currency is called the quote currency. If the trading account is funded in the quote currency, the pip value for different lot sizes is set to 0.0001 for the lot size. As a rule, trading accounts on the foreign exchange market are funded in US dollars. Therefore, if the quote currency is not US dollars, the pip value is multiplied by the exchange rate of the quote currency against the US dollar.
Determining the right trade size is an important aspect of Forex trading. A trader who takes into account all the necessary factors can reduce the risk and increase his chances of success.