Risk Managament and Lot SIze Calculations

Hi Guys,

I know this has been asked before but I cant get my head around it. I have found a forex position size calculator ( http://www.babypips.com/tools/forex-...sitionsize.php ) that will allow an account to be in aud.

If someone has a few minutes can they please go through the working. for how the calculations are made.

If possible using AUD as the account currency and the currency pair maybe being GBP/CHF.

Thanks in advance.

Steve

OK, it worked fine for me. You just select the account currency, the currency pair, fill the rest of the data according to your account and risk preferences and it will calculate.

BTW, I even know where did they "borrow" this calculator . Bad, bad BabyPips...

Hi Enivid,

Thanks for the reply, I can get it to work but I want to understand the actual calculations.

Regards
Steve

OK. Since I've developed this calculator before BabyPips copied it to their site, it won't be hard for me to explain how it calculates.

First, it calculates the amount of risk in currency units (money) or the risk ratio from the given money to risk (if "Swap with Money") was clicked. For example, if your account is AUD5,000 and you want to risk only 3%, it will produce AUD150 money risk amount.

Second, it needs to calculate the cost of one currency unit (it's 0.0001 for EUR/USD and USD account, but differs if basic currency in the pair and the account currency are different). If the Ask price is used then the cost of one unit is divided by the price, if the Bid price is used then the cost is multiplied by the price. Whether Ask or Bid price is used is determined by the position of the account currency in the pair - Ask if it's on a long side and Bid if it's on a short side (base currency). For example, for AUD account currency and GBP/CHF traded pair, the pair to convert CHF to AUD is AUD/CHF, where AUD is on the long side, which means that an Ask price of AUD/CHF should be used. If the Ask on AUD/CHF is 0.9481 then the cost of one currency unit is 0.000105474 (AUD).

Third, the amount of units and lots for position are determined. The units are calculated as money (already calculated or entered) divided by stop-loss pips and then divided by 1 unit cost and then divided by the leverage and then multiplied by 100. If the risk was switched with money. Lots are the units divided by 100,000.

That's all.

Hi Enivid,

Thanks for that. I appreciate the time you spent to answer.

Steve