Order and Risk Management | Forex Factory

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Order and Risk Management

  • #1
  • First Post: Aug 23, 2009 11:29am Aug 23, 2009 11:29am
How does the choice of Stop Losses and the size of lots to trade relate to order/risk management?

When people say: "don't trade/risk more than 2% of your balance (or free margin?) in an individual trade"

1) Do they mean to restrict the S/L to a certain point number which does not account for more than 2%

2) Do they mean to restrict the size/fraction of the lot to trade such that it is not more than 2% of your account?!

3) Only N positions to account for say 20% of your account and restrict Stop Loss to 2% of balance each


Let's say I use a fixed leverage of 20:1 and have an account balance of $1000 on a micro lot (0.01) account.

The smallest possible trade I can make is to buy a 1000 units (0.01 lot) which needs roughly $50 of margin with 20:1. That's already 5% of my account!

Or is it better to buy any position size (with a risk of say 10% of my account) but a stop loss which does not risk more than 2%?
Which would be with a pip value of $0.10 which would be 200 pip?

Thanks for any clarifications!
  • #2
  • Feb 23, 2010 4:50pm Feb 23, 2010 4:50pm
1 and 2 are interdependent. These are the calculations you should use. 3. sounds dangerous especially if the pairs are correlated - eg all xxx/jpy pairs which often move together.

Keep risk management in the forefront until you are consistently profitable. No point in aiming to earn $10.00 an hour and then losing by that much.
Gone to a better place
  • #3
  • Feb 24, 2010 8:56am Feb 24, 2010 8:56am
First lets make sure of our pip values. At 1 full standard lot (100,000) a pip is worth $10, at 0.1 lot (10,000) each pip is worth $1 and at 0.01 lot (1000) a pip is worth $0.1 (This assumes a USd account trading a USD pair)

So you find a trade that you want to take. The next thing is to determine WHERE your SL should be placed. Let us assume that you can hide it behind some SR 50 pips away so we have a 50 pip SL.

Now our trading plan says to risk no more then 2% of our equity. In your case you have $1000 so 2% of that is $20. Now that $20 has to be stretched over the 50 pips so we can determine the pip value of our SL as $20/50 pips or $0.4 per pip.

Now looking at pip values per lot we can see that we can trade 0.04 lots with a 50 pip SL. If the trade goes against you and you lose then you will only lose the $20.

Remember that you are only in charge of how much risk you are willing to assume (in this case 2%). The market will tell you where you should place your SL.

So 1. Find trade
2. Determine SL size
3. Calculate position size
4. ENter trade
5. Win
  • #4
  • Jul 27, 2010 4:29am Jul 27, 2010 4:29am
thanks a lot flyer, you helped me a lot
  • #5
  • Dec 31, 2020 12:01pm Dec 31, 2020 12:01pm
Forex trading involves world currency like EUR, GBP. On the other hand, Crypto trading involves cryptocurrency like BTC, ETH.
  • #6
  • Dec 31, 2020 9:18pm Dec 31, 2020 9:18pm
Quoting flyer415
First lets make sure of our pip values. At 1 full standard lot (100,000) a pip is worth $10, at 0.1 lot (10,000) each pip is worth $1 and at 0.01 lot (1000) a pip is worth $0.1 (This assumes a USd account trading a USD pair) So you find a trade that you want to take. The next thing is to determine WHERE your SL should be placed. Let us assume that you can hide it behind some SR 50 pips away so we have a 50 pip SL. Now our trading plan says to risk no more then 2% of our equity. In your case you have $1000 so 2% of that is $20. Now that $20 has to...
Good information, money management, and order placement are important. It takes a lot to maintain these two things to gain consistent profit.
  • #7
  • Jan 2, 2021 5:45am Jan 2, 2021 5:45am
Managing risk in forex has got to be one of the hardest things to do because no matter how well you do it you will still always have risk and you will face the risk at some point and that is when trades do not go your way. That is where to manage risks you need to have a trading plan and you also need to have a trading strategy. To better do it you should have a plan and a strategy that can adapt to the changes in forex. If you have a constant palna dn strategy the you will face even more risks. Having an adaptive trading plan is no easy but with knowledge and determination it's very easy to come up with an effective one and not just anyone.
  • #8
  • Jan 3, 2021 2:55pm Jan 3, 2021 2:55pm
Quoting flyer415
First lets make sure of our pip values. At 1 full standard lot (100,000) a pip is worth $10, at 0.1 lot (10,000) each pip is worth $1 and at 0.01 lot (1000) a pip is worth $0.1 (This assumes a USd account trading a USD pair) So you find a trade that you want to take. The next thing is to determine WHERE your SL should be placed. Let us assume that you can hide it behind some SR 50 pips away so we have a 50 pip SL. Now our trading plan says to risk no more then 2% of our equity. In your case you have $1000 so 2% of that is $20. Now that $20 has to...
Yes, you can do all that, but it gets old real quick, just use any of many EA designed to do the math, I can't mention any here...



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PS: let's see you do the calculation for EURGBP
It takes a lot for me to IGNORE you, but you can try.
  • #9
  • Last Post: Oct 31, 2021 5:50am Oct 31, 2021 5:50am
Quoting flyer415
First lets make sure of our pip values. At 1 full standard lot (100,000) a pip is worth $10, at 0.1 lot (10,000) each pip is worth $1 and at 0.01 lot (1000) a pip is worth $0.1 (This assumes a USd account trading a USD pair) So you find a trade that you want to take. The next thing is to determine WHERE your SL should be placed. Let us assume that you can hide it behind some SR 50 pips away so we have a 50 pip SL. Now our trading plan says to risk no more then 2% of our equity. In your case you have $1000 so 2% of that is $20. Now that $20 has to...
Really well explained. There are so many factors when setting up your trades, a lot of people don't use these techniques and end up losing. Another thing I would advise is once you're into profit move your stop loss into profit so no matter what you get that. Also, when you reach your TP you can take 80% and leave the remaining 20% to see if it runs more but with less risk.
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