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Re: How much to buy w/2% risk of $1k and w/50pip SL?
Here is my 2nd attempt at trying to determine how many units of a pair I should buy based on a 50-pip SL and 2% capital risk.
Several people have suggested using the online tools, but I would like to be able to use these valuations in automated
backtesting, so I need to understand how to compute them by hand (so I can write the backtesting program).
A few things I still don't understand:
1) Why don't I have to account for leverage?
2) Why is the formula for examples C and D the same (assuming it's correct).
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A) EUR/USD : USD in Quote
B) USD/JPY : USD in BASE
C) CHF/JPY (USD/JPY) : USD in Conversion Base
D) EUR/GBP (EUR/USD) : USD in Conversion Quote
Account Size: $5,000.00 (USD)
Stop Loss: 50 pips per Unit
RiskAmount = 2% of Account Size = $100
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A) EUR/USD : USD in Quote
FORMULA: ((RiskAmount * 1) / PipValue) / MaxPipLoss) = Units
RiskAmount = $100
PipValue = .0001 (USD)
MaxPipLoss = 50
Units = ((100 * 1) / .0001) / 50 = 20,000
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B) USD/CHF : USD in BASE
USD/CHF = 1.3151 = "USDRATE"
FORMULA: ((RiskAmount / USDRATE) / PipValue) / MaxPipLoss) = Units
Units = ((100 / 1.3151) / .0001) / 50 = 15,207
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C) CHF/JPY (USD/JPY) : USD in Conversion Base
Pair: CHF/JPY = 89.15
Pair: USD/JPY = 116.55 = "USDRATE"
FORMULA: ((RiskAmount * USDRATE) / PipValue) / MaxPipLoss) = Units
Units = ((100 * 116.55) / .0001) / 50 = 2,331,000
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D) EUR/GBP (EUR/USD) : USD in Conversion Quote
Pair: EUR/GBP = 0.6841
Pair: EUR/USD = 1.1855 = "USDRATE"
FORMULA: ((RiskAmount * USDRATE) / PipValue) / MaxPipLoss) = Units
(uses same formula as Example C)
Units = ((100 * 1.1855) / .0001) / 50 = 23,710
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