How much to buy w/2% risk of $1k and w/50pip SL?

[kenazen]

Hello,

I'm trying to figure out how to manage money.

If I have an account with $1,000.00, and I am willing to risk 2% on a trade, then I would need to set my stops so that I would not lose more than $20.00 on the trade ($1,000.00 * .02 = 20.00).

Let's say I believe the EUR/USD is going to drop, and it is qouted at 1.1859 (as it is right now). I also believe that I need to give it 50 pips of freedom for whipsaws.

The challenge is to figure out how MUCH of EUR/USD to short. I am using Aonda, so this value should be expressed in units.


I've been looking at this website, and trying to make sense of it:

http://www.babypips.com/forex-quicks...-your-pls.html

"EUR/USD at an exchange rate of 1.1930
(.0001 / 1.1930) X EUR 100,000 = EUR 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip"

For the EUR/USD right now:

(0.0001/1.1859) * (1.1859 * 100000) = $10

This forumla would seem to always produce a pip value of $10 for pairs using the USD as the "qoute" price. Is that correct?

Knowing that my stop should be at a $20 loss, and a pip is worth $10, then it would seem I could only set my stops at 2 points instead of 50. Then again, its 4am, lol.

Any suggestions?

[bnight]

Your Margin should be 40$ or 0,40 $ per pips so 50*0,4=20$ loss this is on Margin 1:100. Good Luck

[kenazen]

Originally Posted by bnight

Your Margin should be 40$ or 0,40 $ per pips so 50*0,4=20$ loss this is on Margin 1:100. Good Luck

I'm not sure I understand this. I'm using the "game" account, and the leverage is set to 20:1, though it looks like I can change it to 100:1. I will prolly use 20:1 since that I will use with my real account.

What do you mean by my margin should be "$40 or 0" ? (i'm a bit new)

[MickMason]

For simplicity I found it's easier to forget about margin and leverage.....

Your account is $1000
Your maximum risk is 2% ($20)
Your stop loss is 50pips
Divide $20 by 50pips = 40 cents per pip
Trade size 4k

Another example...

Your account is $1000
Your maximum risk is 2% ($20)
Your stop loss is 30pips
Divide $20 by 30pips = 66 cents per pip
Trade size 6.6k


Hope that helps


Mick

[kenazen]

Maybe there is an easier answer. If my "core equity" is 1% of my uncommited money, and the trading interface tells me how many units I can purchase, then can't I just take 1/100th of that number? I would still like to understand the math, though, lol.


http://www.fxstreet.com/nou/content/107410/content.asp

"If you want to enter a second position then you should calculate 1% risk of your core equity not of your starting balance!"

[kenazen]

Originally Posted by MickMason

For simplicity I found it's easier to forget about margin and leverage.....

Your account is $1000
Your maximum risk is 2% ($20)
Your stop loss is 50pips
Divide $20 by 50pips = 40 cents per pip
Trade size 4k

That's nice and simple. However, my trading software shows "available units", and on EUR/CHF at least - "1 pip = 0.00 USD". So if I knew the USD $ amount to buy, I'm not sure how easy it would be to do on non-USD paris.

I'm guessing my "1/100th of available units" will always work, though I need to learn the math if I'm going to be serious about this stuff.

[kenazen]

Originally Posted by kenazen

I'm guessing my "1/100th of available units" will always work, though I need to learn the math if I'm going to be serious about this stuff.

I lost 15% ($15k) of my demo account between Midnight and 6am. I need to figure this out, lol.

If I had the leverage at 100:1, I probably would have been the first person ever to wipe out a $100,000 account in 6 hours.

[MickMason]

Originally Posted by kenazen

If I had the leverage at 100:1, I probably would have been the first person ever to wipe out a $100,000 account in 6 hours.

lol, don't you believe it

Work out the value of a pip for other pairs and use the same formula, it might be easier to stick to Gbp/Usd and Eur/Usd for now though.


Mick