money managment

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amirishaq
7
amirishaq  
in the forex market money managment is very difficult work so ever one can give his comments to manage the  money for trading.
Bernhard Schweigert
28156
Bernhard Schweigert  
amirishaq:
in the forex market money managment is very difficult work so ever one can give his comments to manage the  money for trading.
Good money management, very important

Many pages of text can be written about it. To make it simple (but not simpler) for those who are learning with us. 1% to 0.5% risk per trade means:
First determine the pips of your SL (not the other way around!) and then calculate the position size. It also matters what pair it is.

To size a position, you need to know:
  1. How much money you have to trade
  2. What percentage of your money you are willing to risk
  3. What is the distance between the entry price and the stop loss for every trade
  4. What is the pip value per standard lot of the currency pair traded

Imagine that you have an account with 10,000 US Dollar and you are ready to lose 2% in a bad trade. You are considering a position on the USD/JPY and the stop loss for that trade is set at a distance of 50 pips. The current pip value per standard lot is, let's say, 9,85 US Dollars. You are now ready to calculate your position's size by using the formula:
Position size = ((account value x risk per trade) / pips risked)/ pip value per standard lot

((10,000 US Dollars X 2%) / 50) / 9.85 = (200 USD / 50 pips) / 9,85 =
4 USD / 9,85 USD = 0.40 standard lots (4 mini lots or 40.000 currency units)

In case you are going to open several positions, the same equation would be used to limit the overall risk in all the open positions. The only difference is that a maximum number of open positions has to be set beforehand and a partial risk attributed to each one of the positions.

The pip value:

Let suppose your account is in USD:

If USD is quote currency of the currency pair. 1 standard Lot (100,000 base units) that the quote currency is the USD such as EUR/USD. The Pip Value is calculated:
100,000*0.0001 (4th decimal pip)=$10

If USD is base currency of the currency pair. 1 standard Lot (100,000 base units) and the base currency is the USD such as USD/JPY. The Pip Value is:
The USD/JPY is traded at 107.107 means that $1=107.10 JPY 100,000*0.01 (the 2nd decimal) /107.107=$9.33. pip value
This is approximated because the rate changes, so does the value of pip.

If the USD is not traded in the pair. 1 standard Lot (100,000 base units) on GBP/JPY.
If GBP/JPY is traded at 141.850.
The Pip Value => 100,000*0.01JPY*1GBP/141.850JPY = 7.05 GBP
Because the base currency of the account is the USD then we need to take into account the GBP/USD rate which is currently at 1.32543.

7.05 GBP/(1 GBP/1.32543 USD)= $9.34 pip value

Hope it helps :)

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