Need Help !

[[Deleted]]

Dear Sir,

I find articles such as below:

-------------------------------------------------- -----------------------------------
A trader has $ 1000 USD account, he places a buy order of 4000 units on EUR / USD,

the which will give him on average $ 0.40 cents per 1 pip. Since 2% risk he is willing take That equals $ 20 USD ($ 1,000 * 2%),
calculations will be next: $ 20 / $ 0.40 cents = 50 pips is the limit for this trade
-------------------------------------------------- ------------------------------------

Please help me:
A. The explanation of the calculation?
2. What does it mean 4000 units?

Thank You very much

[k.doras]

mantra:

Dear Sir,

I find articles such as below:

-------------------------------------------------- -----------------------------------
A trader has $ 1000 USD account, he places a buy order of 4000 units on EUR / USD,

the which will give him on average $ 0.40 cents per 1 pip. Since 2% risk he is willing take That equals $ 20 USD ($ 1,000 * 2%),
calculations will be next: $ 20 / $ 0.40 cents = 50 pips is the limit for this trade
-------------------------------------------------- ------------------------------------

Please help me:
A. The explanation of the calculation?
2. What does it mean 4000 units?

Thank You very much

They are speaking about a micro lot account.

On this acount a lot-size of 0.01 (which is one micro lot) equals 1000 Units.

So here is the calculation:

2% relative risk on 1000$ = 20$ absolute risk. So the next step is to find out how much $ is one pip and you are done

I'm quoting this from a website because I'm lazy:

"(one pip, with proper decimal placement/currency exchange rate) x (Notional Amount)"

The rest should be clear.

[William Roeder]

mantra:
A trader has $ 1000 USD account, he places a buy order of 4000 units on EUR / USD,

the which will give him on average $ 0.40 cents per 1 pip. Since 2% risk he is willing take That equals $ 20 USD ($ 1,000 * 2%), calculations will be next: $ 20 / $ 0.40 cents = 50 pips is the limit for this trade

The calculation is backwards. You place the stop where it means the reason for getting in the trade is wrong. E.g. trading a bounce off support, the stop goes below the support.

You then calculate the lotsize from the percent risk and pips risk (including spread.) You don't open a 2.0 lot trade and place the stop 1 pip below the open even though that is the same $20 (ignoring spread).

In addition to that, you also have to calculate the available margin, not at the time of opening but at the most adverse excursion, i.e. at the stop, to avoid a margin call. If you could have multiple orders open (such as multiple pairs) then you must calculate margin for all MA. See my code.