I've been trying to size my positions based on a 1% risk on my account using this online tool: http://www.earnforex.com/position-size-calculator
However, my account currency is GBP, and it doesn't seem to work (not sure if it's because it doesn't work for GBP accounts, or some fundamental misunderstanding on my part). It always produces a lot size where my risk is less than 1%, sometimes significantly so.
I've been unable to find a better one online (better than doesn't work, heh...), so I decided to write something myself that works, partly because this will improve my understanding in the process.
However, something's going wrong because my calculations violate the idea that you have fixed pip values for GBP/USD with a USD account.
Here's my thinking with a simple example, if someone could tell me where I'm going wrong, that would be great:
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Currency GBP/USD
Buy: 1.5000
Stop 1.4900 (100 pips risk)
Account size $5000
Risk 1% ($50)
When you go long, you’re buying GBP at 1 / 1.5000 = 0.66666667
When the stop is hit, you’re selling GBP at 1.49
So, 1 lot at 0.66666667 is £66,666.66
Sell this at 1.49 = $99,333.33
Loss = $666.67
So for a risk of 1%, you need to buy 50/666.67 = 0.075 lots
Change the current exchange rate to 2.0000, and you end up with 0.1 lots
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Any pip value calculator will tell you that 1 pip in GBP/USD is worth $10 for a standard lot, yet I can't seem to get my thick head around my simple calculations produces a variable pip value...
I can see that if you multiply the resulting lots by 1/exch rate, you get the correct value for a $10 pip, but I don't see why this should be the case:
1) you have $
2) you exchange $ for £ at 1/(GBP/USD rate)
3) you exchange £ for $ at GBP/USD rate, so you now have $
Somebody please help my poor head.
However, my account currency is GBP, and it doesn't seem to work (not sure if it's because it doesn't work for GBP accounts, or some fundamental misunderstanding on my part). It always produces a lot size where my risk is less than 1%, sometimes significantly so.
I've been unable to find a better one online (better than doesn't work, heh...), so I decided to write something myself that works, partly because this will improve my understanding in the process.
However, something's going wrong because my calculations violate the idea that you have fixed pip values for GBP/USD with a USD account.
Here's my thinking with a simple example, if someone could tell me where I'm going wrong, that would be great:
---
Currency GBP/USD
Buy: 1.5000
Stop 1.4900 (100 pips risk)
Account size $5000
Risk 1% ($50)
When you go long, you’re buying GBP at 1 / 1.5000 = 0.66666667
When the stop is hit, you’re selling GBP at 1.49
So, 1 lot at 0.66666667 is £66,666.66
Sell this at 1.49 = $99,333.33
Loss = $666.67
So for a risk of 1%, you need to buy 50/666.67 = 0.075 lots
Change the current exchange rate to 2.0000, and you end up with 0.1 lots
---
Any pip value calculator will tell you that 1 pip in GBP/USD is worth $10 for a standard lot, yet I can't seem to get my thick head around my simple calculations produces a variable pip value...
I can see that if you multiply the resulting lots by 1/exch rate, you get the correct value for a $10 pip, but I don't see why this should be the case:
1) you have $
2) you exchange $ for £ at 1/(GBP/USD rate)
3) you exchange £ for $ at GBP/USD rate, so you now have $
Somebody please help my poor head.