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Originally Posted by kenazen
So I need to choose a size where 1 pip is equal to $0.80. I messed around and found the size to be 8000 units.
Ill have to sleep again before I can figure out how I get from 0.8 to 8,000, obviously mutliplying by 10,000, but I need to understand why.
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I think you probably need to think about what you're actually doing when you buy and sell.
Currencies are traded in pairs. You're betting that one of those currencies will increase or decrease in value against the other.
Using your example, buying one Eur will cost you $1.1861, if you buy 8000 eur it will cost you $9,488.80, and you will now be the proud owner of 8000 Eur.
If price moves so that one eur is worth $1.1862 you can sell your 8000 Eur and receive $9489.60
The profit you will have made will be the difference between what it cost you to buy those 8000 eur ($9,488.80) and what you sold them for ($9,489.60), $0.80
If, on the other hand, you sold one Eur you would have $1.1861 for it. If you sold 8000 Eur you would have $9,488.80
If price moved to $1.1862 and you wanted to buy back those 8000 eur it would cost you $9,489.60, a loss of $0.80
In effect each eur that you buy or sell will make/lose you $0.0001, so if you times that by 8000 = $0.80, or 10,000 = $1, or 12,500 = $1.25 etc etc etc
So, working it back the other way, say you only want to risk $30, how many eur do you buy or sell? Well if buying or selling one Eur makes/loses you $0.0001 then divide your $30 by $.0001 and you get.......300,000! But wait, now you have to work out your stop, let's say 25pips. Divide your 300,000 by 25 and you get 12,000, that's your trade size. 12,000 will be worth $1.20 per pip ($.0001 x 12,000), and $1.20 x 25 is.....you guessed it.....$30!!!
That's the mechanics of it, as I say the easiest way is to divide your maximum risk ($30) by your stop (25) and that will give you the value per pip ($1.20), which means trade size of 12k (12k x $0.0001)
Gosh, I need a lie down!
Mick
