Seeking help with Position Sizing

Hello friends,

I have opened an account of US$ 250 with Marketiva 10 days ago and I'm set to start serious trading from this week. However, I am having some confusion about position sizing with my micro account.

When I asked the Marketiva support, they told me that 100 units could be purchased for US$ 1. This gives me a pip value of $ 0.01. (= 1/100)

On any trade, I'd be risking 4% of my account = $ 10 (Leverage = 1:1). Now, on Jan 29, 2010 I opened a long position for GBPUSD pair with a stop loss of 81 pips. [bad idea to be long after we saw the drop; I know X_X ]

So according to my calculation, the quantity (number of units) of trade should be:

Absolute Dollar Risk / Pip Value x Stop Loss

= 10/ .01x81

= 12 Units

So, on I opened a long position of 10 units of GBPUSD at 1.6168 and the trade reversed, stop loss of 81 pips was hit.

In my account statement, it shows a loss of $ 0.0810 whereas, it should show a loss of $10 right?

Now, where did I go wrong in my position sizing calculation? Please help me out with this.

Thank you,

Re: Seeking help with Position Sizing

thank you indo-investasi... now i become a better trader...

Re: Seeking help with Position Sizing

Hi sheetal,

 

What you did is already right. Here again the sequence on how to calculate position sizing:

 

1. What is you risk on percentage per equity?

>> You said 4% from $250, then it should be $10

 

2. What is your risk in pips means your stop loss from entry point?

>> You said it is 81 pips

 

3. How many lot size I could purchase based on risk on equity & risk on pips (stop loss)

>> $10 / (81 pips x $0.01/pips) = 10 / 0.81 = 12 lot (micro)

 

note: $0.01/pips is pips value in micro lot using GBPUSD. if you want to calculate for how many mini lot then use $0.1/pips.

 

So yes, you supposed to lose $10 and not $0.081. maybe you can post picture of your order so I can help explain better.

Hello Dr0o69,

I appreciate your help and thank you for your time. I have attached the screen-shot of the GBPUSD long trade on Jan 29, 2010:

http://i45.tinypic.com/280qfi8.jpg

Thank you

Re: Seeking help with Position Sizing

thank you indo-investasi... now i become a better trader...

Re: Seeking help with Position Sizing

Hi sheetal,

In your example I assume you bought 10 units of base currency of currency pair GBP/USD (GBP is the base currency here, so going LONG you buying pounds for USDollars).

So in your case 10 units of GBPUSD = 10/100 000 = 0.0001 of standard lot or 10/10 000 = 0.001 of mini lot, or 10/1000 = 0.01 of microlot.

So remember, if you buy there 1000 you actually buy 0.01 of standard lot (or 1 microlot).

If 10000 then you buy 0.1 standard lot (or 1 mini lot).

And so on.

Same with Oanda broker - you can actually buy as little as just 1 unit of base currency!!!!

Moreover there are plenty of webbased lot calculators, like this:

http://www.goforex.net/money-management-calculator.htm

Hope that shed some light on position sizing :)

Cheers!

Have a great day! :)

Re: Seeking help with Position Sizing

Hi Sheetal,

 

Hmmm...i'm not sure you play micro account because all the numbers on screen shot is just not calculated as micro account. better you check with marketiva staff how can you get this numbers.

Thanks for the lead. I really appreciate your help with my doubt. Done the same. The brokers are not specifically trained to help traders with risk management. So although, they provided me with a direction, there were no precise answer or calculation procedure provided. However with the directions provided by them and with bit more piecing together the puzzels, I shouted eUrEkA :D :-bd

Thank you Dr0o69 for your initiative and help. ^:)^

Thank you Starting, yes, the info you provided definitely helped me and did provided some wonderful resources. :)

Re: Seeking help with Position Sizing

thank you indo-investasi... now i become a better trader...

Re: Seeking help with Position Sizing

So, how was this done? Right, here we go:

So according to my calculation, the quantity (number of units) of trade should be:

 

Absolute Dollar Risk / Pip Value x Stop Loss

 

= 10/ .01x81

= 12 Units

 

So, on I opened a long position of 10 units of GBPUSD at 1.6168 and the trade reversed, stop loss of 81 pips was hit.

 

In my account statement, it shows a loss of $ 0.0810 whereas, it should show a loss of $10 right?

Now it's calculated something like this:

Quantity = Absolute $ Risk / Pips in risk{using 4 place or two place decimal as applicable}

For example, if my ab risk is $10 and pips in risk is 20 for a trade in GBPUSD:

Units = $10/.0020 = 5000

To ensure this, I triggered a virtual trade in the GBPUSD pair with short entry @ 1.5925 risking $10 (A$R) for 5000 units. Profit Target = 1.5900. SL = 1.5944 Here are the results:

Profit target of 1.5900 was hit:

http://i46.tinypic.com/2v2i7mx.jpg

Snap:

http://i45.tinypic.com/2r3fns6.jpg

With this, I guess the riddle was solved !!

Happy trading to whoever reading ;) :-bd

-- 01 Feb 2010, 21:51 --

@sheetal

your welcome... whenever you find something is good, don't forget to kudos. this is the culture in our lovely forum. and hopes that you will share and contribute more in here. cheers.

Roger that :-bd

Re: Seeking help with Position Sizing

Hello Sheetal.

I myself have been trading on Marketiva since more than 3 Years. and I could understand what you're stuck Out about.

I'm writing this simple equation and you can use it to calculate your Figures. (It won't give you accurate figure about Eur/GBP).For Rest everything It works fine.

since you are willing to Risk 4% of your margin. and Lets assume 4% of 250 = $10. So 10 dollar is what you want to Risk. Now note this.

Profit = 0.0001 x pips x Units. [ I guess you understand what "Unit" I'm talking about ]

Loss = 0.0001 x pips x Units..

Ok now let me design a trade for You.

MarGin : 250 usd.

Leverage: 1:100

margin Used: 10% of account. i.e. $25.

Units: 25 x 100( since leverage is 1:100) =2500

amount to Risk: 4% of 250. i.e. 10 usd.

since you want to calculate your stops in terms of how many Pips. Lets do it first

Loss = 0.0001 x units x pips

that makes : pips = Loss/ (0.0001 x Units)

= 10/ (0.0001 x 2500)

= 10/ 0.25 i.e. 40

pips = 40 .

All Right so now you know that you have to Risk 40 pips( since you want a 4% risk overall) and we assume you are using 10% of your margin for a Trade.

Now a quick example of how much pips to Risk In case you are using 5% of your margin.

Margin = 5% of 250 i.e. $ 12.5

Units = 12.5 x 100 i.e 1250

To Risk = 10 usd

pips = Loss /( 0.0001 x 1250)

= 10/ 0.125

= 80 pips.

Fine. same way you will also have to calculate the expected Gains what you want. Shall I put 1 extra example for calculating Gains. well I think nothing wrong with it.

Lets say you want a Gain of 7%. using the same frames of trade. and using the 5% of margin.

7 % of 250 = $ 17.5

Profit = 0.0001 x pips x Unit

17.5 = 0.0001 x pips x 1250

pips = 17.5 / 0.125

= 140 pips.

So what you need is making 140 pips. ( Go ahead and do That .. :)>- LOL)

same way calculate how much profit( in dollars) you will make If you make a Gain of 100 pips

Profit = 0.0001 x units x pips

= 0.0001 x 1250 x 100

= 12.5 dollars.

Hmmm so the profit is $ 12.5. Fine you can Keep them all LOL.

I have been trading with Marketiva since more than 3 years.( user name : theGambler_ Lot of Guys knew me and they acctually used to wait for my tips) But now I donot participate on chats since I have an agreement with marketiva that I will not use their chat place for writing my calls. I don't understand why they want me to do this ,since I never asked for money from any user. all of my calls were free). well making calls was not important to me what important thing is making profit. So I'm still ok with It.

They have few features which is very Good. No oveNight Interest, You can use any amount of money you want, we don't have fixed lot size there. (units). and the most important thing. Their outstanding support. whenever You need them You find them.

If you need something else to know regarding Trading, system design, Risk management or anything else. drop me a message ,Put it on this forum itself. coz I won't reply PM's.

Well Sheetal my Regards and wishes for you.

take care:

" If you think you can .....You can. If you think You can't... You're Right !"

Re: Seeking help with Position Sizing

Hello Sheetal.

 

I myself have been trading on Marketiva since more than 3 Years. and I could understand what you're stuck Out about.

 

I'm writing this simple equation and you can use it to calculate your Figures. (It won't give you accurate figure about Eur/GBP).For Rest everything It works fine.

 

since you are willing to Risk 4% of your margin. and Lets assume 4% of 250 = $10. So 10 dollar is what you want to Risk. Now note this.

 

Profit = 0.0001 x pips x Units. [ I guess you understand what "Unit" I'm talking about ]

Loss = 0.0001 x pips x Units..

 

Ok now let me design a trade for You.

 

MarGin : 250 usd.

Leverage: 1:100

margin Used: 10% of account. i.e. $25.

Units: 25 x 100( since leverage is 1:100) =2500

amount to Risk: 4% of 250. i.e. 10 usd.

 

since you want to calculate your stops in terms of how many Pips. Lets do it first

 

Loss = 0.0001 x units x pips

 

that makes : pips = Loss/ (0.0001 x Units)

= 10/ (0.0001 x 2500)

= 10/ 0.25 i.e. 40

pips = 40 .

 

All Right so now you know that you have to Risk 40 pips( since you want a 4% risk overall) and we assume you are using 10% of your margin for a Trade.

 

Now a quick example of how much pips to Risk In case you are using 5% of your margin.

 

Margin = 5% of 250 i.e. $ 12.5

Units = 12.5 x 100 i.e 1250

To Risk = 10 usd

 

pips = Loss /( 0.0001 x 1250)

= 10/ 0.125

= 80 pips.

 

 

Fine. same way you will also have to calculate the expected Gains what you want. Shall I put 1 extra example for calculating Gains. well I think nothing wrong with it.

 

Lets say you want a Gain of 7%. using the same frames of trade. and using the 5% of margin.

 

7 % of 250 = $ 17.5

 

Profit = 0.0001 x pips x Unit

17.5 = 0.0001 x pips x 1250

pips = 17.5 / 0.125

= 140 pips.

 

So what you need is making 140 pips. ( Go ahead and do That .. :)>- LOL)

 

same way calculate how much profit( in dollars) you will make If you make a Gain of 100 pips

 

Profit = 0.0001 x units x pips

= 0.0001 x 1250 x 100

= 12.5 dollars.

 

Hmmm so the profit is $ 12.5. Fine you can Keep them all LOL.

 

 

I have been trading with Marketiva since more than 3 years.( user name : theGambler_ Lot of Guys knew me and they acctually used to wait for my tips) But now I donot participate on chats since I have an agreement with marketiva that I will not use their chat place for writing my calls. I don't understand why they want me to do this ,since I never asked for money from any user. all of my calls were free). well making calls was not important to me what important thing is making profit. So I'm still ok with It.

They have few features which is very Good. No oveNight Interest, You can use any amount of money you want, we don't have fixed lot size there. (units). and the most important thing. Their outstanding support. whenever You need them You find them.

If you need something else to know regarding Trading, system design, Risk management or anything else. drop me a message ,Put it on this forum itself. coz I won't reply PM's.

 

Well Sheetal my Regards and wishes for you.

 

 

take care:

 

 

" If you think you can .....You can. If you think You can't... You're Right !"

That was HUGE and well explained!! Thanks a ton ^:)^

Re: Seeking help with Position Sizing

I suggest you move from marketiva to other broker such as oanda. Marketiva does not allow profitable stop loss, thus you can't even trail stop manually.

marketiva and oanda has the same profit calculation. 1 pip is the 4th digit on EU/GU or the 2nd digit on UJ/GJ.

- 1 pip with 1 unit = 0.0001

- 1 pip with 10 unit = $0.001

- 1 pip with 100 unit = $0.01

- 1 pip with 1,000 unit = $0.1

- 1 pip with 10,000 unit = $1

- 1 pip with 100,000 unit = $10

- 1 pip with 1,000,000 unit = $100

Regards,

Re: Seeking help with Position Sizing

Thanks William

But I think, you shouldn't have deleted all the postings. It was my own discovery. Moreover, I don't remember if you've answered my question when I posted it first.

Re: Seeking help with Position Sizing

But I think, you shouldn't have deleted all the postings. It was my own discovery. Moreover, I don't remember if you've answered my question when I posted it first.

Didn't delete anything. Haven't deleted any post since... like 6 months.

Regards,

Re: Seeking help with Position Sizing

Risking 4% per trade is very aggressive......consider reducing it to 2%......just my 2 cents.

Re: Seeking help with Position Sizing

Didn't delete anything. Haven't deleted any post since... like 6 months.

Regards,

Hi William,

Thanks for writing back. Well, I admit that it was my fault. Actually I came directly to the 2nd page of this thread and I was in hurry. Sorry for my arrogance and hard words.

Thanks

Hi Dear, of Position sizing experts please guiding me because i'm new with forex and somewhere info get me confused with the following:

acount FOREXmicro ($0.1pip) Capital $20000 Risk at 2%

I want to Long 83 Lots at 0.8732 ($risk=398.4)

Stop Trigger 0.8684

Risk to Reward 2.4 ($profit=971)

but I couldn't know how to place a trade in order extacly in metatrader 4

because in metatrader 4 broker only Shown Volume = 0.10 to 0.14 and from

1.0 to 8.0 Volume?

many thanks....^:)^