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Money Management, Please help.

  • #1
  • First Post: Oct 20, 2005 12:49pm Oct 20, 2005 12:49pm
I am using the oanda trader (demo) with 100k as the starting balence. I have my own system but I want to make sure that I am working the money management correctly.

Im trying to only use 6% of my balence on each trade. With stop losses of course.

My question is for the Oanda Pro's in here.

Each trade Im taking the units and multilying by 6%.
Example 2,000,000 units * 6% = 120,000 units.

This seems to be working. Am I on the right track with this? Or is there another way to get my 6% calculation.
  • #2
  • Oct 20, 2005 1:35pm Oct 20, 2005 1:35pm
Forgive me for saying so but 6% risk on each trade is WAY to high. Having said that, if you want to continue that way and ruin your life and your account, sure, I’d be glad to help you.

I think your going about that entirely wrong. Doing it that way the only answer you get is what equals 6% of your available units. It doesn’t tell you anything about how much money your risking on the trade based on where your stop goes. AND it doesn’t do anything to take into the fact that all pips are not created equal. A pip value on the EURUSD is different than the USDCHF. A pip value on the USDJPY is different that the GBPUSD. C’mon now.


I don’t know why you wouldn’t just take 6% of your account balance (money) and divide the answer by how many pips stop your using. Assuming that you are trading a pair that has a conversion equal to the USD denomination, that will tell you how many units you can trade. Start playing with the Oanda Profit calculator.


$100,000*6%= $6000 on each trade. So the bottom box of the profit calculator where it says “Profit USD” you want that box to = $6,000.



First select the pair you will be trading.



Then plug in whether you are buying or selling, where your getting in and out(your stop), and you want that bottom box to = $6,000. If it’s anymore or less you will not be using exactly 6%. Then keep adjusting your units until it equals 6% of your account balance (money), in this case $6,000.



There are easier ways, believe it or not, but this is a good start for you.



Happy Trading!
  • #3
  • Oct 20, 2005 1:39pm Oct 20, 2005 1:39pm
When you say you are trying to use only 6% of your balance on each trade, you mean that you are risking 6% of your 100k balance on every trade, that's the max amount you can afford to lose in this particular trade?? Or you mean you put tie up only 6% of your balance in Margin???

The way you calculated it in your post assumes that you tie up a max of 6% in Margin as far as I can understand, so if you are using a 1:100 Margin, and having a 100k balance, you should only be tying $6000 in Margin, and thus, using 6 standard lots, or $600,000 per trade.

On the other hand, if you are using 6% as a max loss, then the same $6000 are the max you can lose per trade, which will be 100 pips in the case of 6 standard lots..

I am not sure if this is correct or not...Just try to clarify a little better, and if I can be of any help, I will try my best.


Thanks,

Nader
  • #4
  • Oct 20, 2005 2:23pm Oct 20, 2005 2:23pm
Ok so what im trying to do is just make sure that Im not risking alot of my own capital on one trade.

I thought 6% was a good low number. Maybe I should be lower like 2%. The demo account has 100k and I want to only risk 2-6% on one trade. Not margin but actual funds.

So when im ready to put real money in, im still only risking 2-6% on one trade.

So Im putting in trades on GBP/USD with stop loss at 30 pips. 50:1 margin.
  • #5
  • Oct 20, 2005 2:40pm Oct 20, 2005 2:40pm
Hi Jeff,

Read the following post for a detailed description of how to do % risk and position sizing, and why it is so very important to keep you alive!

http://www.forexfactory.com/forexfor...2&postcount=30
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  • #6
  • Oct 20, 2005 2:51pm Oct 20, 2005 2:51pm
Oh great post, that answers it.

If im in on 1 trade per day. I only want to risk 2% of my total balence.

I guess back to question before. Im using the Oanda system and I want to be able to figure out 2% of my balence. Since they use units I was taking the unit for the pair I want to trade and dividing by 2%.

In oanda the units change per pair.
  • #7
  • Oct 20, 2005 2:55pm Oct 20, 2005 2:55pm
If I have 100k in the account 2% of that is $2,000.

How do I figure units to trade with on GBP/USD in Oanda?

Can I take the units available and divide by 2% ??
GBP/USD units = 2,700,000
  • #8
  • Oct 20, 2005 3:28pm Oct 20, 2005 3:28pm
Quoting jeffb
If I have 100k in the account 2% of that is $2,000.

How do I figure units to trade with on GBP/USD in Oanda?

Can I take the units available and divide by 2% ??
GBP/USD units = 2,700,000
You got the $2000 correctly. Now, to find out what position size to trade (how many units to trade) you have to know the value of each pip, and the size of your stop.

Let's say you have determined that your stop needs to be 30 pips. The question now is "How much is each of those pips worth?".

I don't use Oanda, so bear with me if the following isn't exactly right.

1 Standard lot = 100,000 units
1 Mini lot = 10,000 units
1 Micro lot = 1000 units

Anything less than 1000 units is non-standard and is a function of Oanda.

To get the pip value, divide the lot size in units by 10,000.

For a standard lot this would be 100,000 / 10,000 = $10 pip
For a mini lot this would be 10,000 / 10,000 = $1 per pip
For a micro lot this would be 1,000 / 10,000 = $0.10 per pip
For 100 Oanda lots this would be 100 / 10,000 = $0.01 per pip

(for pairs NOT ending with xxx/USD, the pip value will be about 90% of the values shown above)

I doesn't matter that much which lot size you choose, because the dollars risked will turn out roughly the same. Let me run it through for a mini, a micro and for oanda lots:

Mini Lot pip value = $1.00 * 30 pip stop = $30.00
Position size = $2000 / $30.00 = 66.666 Mini lots.
For increased safety, round it DOWN to 66 Mini lots. (never round up)
So you would enter the trade with 66 mini lots which equals 660,000 units.

Micro lot pip value = $0.10 * 30 pip stop = $3.00
Position size = $2000 / $3.00 = 666.66 Micro lots.
For increased safety round it DOWN to 666 micro lots.
So, you would enter the trade with 666 micro lots which equals 666,000 units.

Oanda "lot" size of say, 123 units:
Pip value = 123 / 10,000 = $0.0123 * 30 pip stop = $0.369
Position size = $2000 / $0.369 = 5420 lots times 123 units per lot = 666,660 units.

As you can see, the smaller your lot size, the finer control you have over your position size. (660,000 vs 666,000 vs 666,660) That is a major advantage! The smaller you can make your lot size, the less you will suffer the detrimental effects of Asymmetrical Leverage. Relax, asymmetrical leverage is beyond the scope of this post. All you need to remember is the smaller your lot size, the better.

Dial
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  • #9
  • Oct 20, 2005 4:54pm Oct 20, 2005 4:54pm
Hi Jeff,

When I first started I was really confused too.

One thing that helped me was a spreadsheet I found here
http://eurusd.com/fxcalc.htm
You plug in all your currencies and numbers and it calculates your risk.

Regards
Alan
  • #10
  • Oct 20, 2005 7:15pm Oct 20, 2005 7:15pm
Quoting diallist
You got the $2000 correctly. Now, to find out what position size to trade (how many units to trade) you have to know the value of each pip, and the size of your stop.

Let's say you have determined that your stop needs to be 30 pips. The question now is "How much is each of those pips worth?".

I don't use Oanda, so bear with me if the following isn't exactly right.

1 Standard lot = 100,000 units
1 Mini lot = 10,000 units
1 Micro lot = 1000 units

Anything less than 1000 units is non-standard and is a function of Oanda.

To get the pip value, divide the lot size in units by 10,000.

For a standard lot this would be 100,000 / 10,000 = $10 pip
For a mini lot this would be 10,000 / 10,000 = $1 per pip
For a micro lot this would be 1,000 / 10,000 = $0.10 per pip
For 100 Oanda lots this would be 100 / 10,000 = $0.01 per pip

(for pairs NOT ending with xxx/USD, the pip value will be about 90% of the values shown above)

I doesn't matter that much which lot size you choose, because the dollars risked will turn out roughly the same. Let me run it through for a mini, a micro and for oanda lots:

Mini Lot pip value = $1.00 * 30 pip stop = $30.00
Position size = $2000 / $30.00 = 66.666 Mini lots.
For increased safety, round it DOWN to 66 Mini lots. (never round up)
So you would enter the trade with 66 mini lots which equals 660,000 units.

Micro lot pip value = $0.10 * 30 pip stop = $3.00
Position size = $2000 / $3.00 = 666.66 Micro lots.
For increased safety round it DOWN to 666 micro lots.
So, you would enter the trade with 666 micro lots which equals 666,000 units.

Oanda "lot" size of say, 123 units:
Pip value = 123 / 10,000 = $0.0123 * 30 pip stop = $0.369
Position size = $2000 / $0.369 = 5420 lots times 123 units per lot = 666,660 units.

As you can see, the smaller your lot size, the finer control you have over your position size. (660,000 vs 666,000 vs 666,660) That is a major advantage! The smaller you can make your lot size, the less you will suffer the detrimental effects of Asymmetrical Leverage. Relax, asymmetrical leverage is beyond the scope of this post. All you need to remember is the smaller your lot size, the better.

Dial
damn dial, thats one heck of a great post!

jeff b, if you dont get this concept, jut read dial's post over and over until you get it, he has provided the easiest way to understand how to do the calculations. its all about the pip value and the size of your stoploss in pips. if the pip value is $10, and you have a 30 pip stop, its easy to see that your risk is $300. you just have to figure out the pip value of the lot size you are trading, determine your stoploss in pips, then back it into the amount you are willing to risk.
Relax and be happy.
  • #11
  • Oct 20, 2005 9:22pm Oct 20, 2005 9:22pm
Quoting merlin
damn dial, thats one heck of a great post!

jeff b, if you dont get this concept, jut read dial's post over and over until you get it, he has provided the easiest way to understand how to do the calculations. its all about the pip value and the size of your stoploss in pips. if the pip value is $10, and you have a 30 pip stop, its easy to see that your risk is $300. you just have to figure out the pip value of the lot size you are trading, determine your stoploss in pips, then back it into the amount you are willing to risk.
:o Thank you Great Wizard! :o

Jeff, to expand Merlin's example:
$2000/$300 = 6.666 which rounds down to 6.
Since the pip value is $10, you know that the lot size being used is a standard lot of 100,000 units. So for Merlin's example, you'd trade 6 standard lots which would be 600,000 units.
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  • #12
  • Oct 21, 2005 1:42pm Oct 21, 2005 1:42pm
Quoting diallist
Hi Jeff,

Read the following post for a detailed description of how to do % risk and position sizing, and why it is so very important to keep you alive!

http://www.forexfactory.com/forexfor...2&postcount=30
Hi guys. Long time reader, first time poster.
In the example from the link...
Quoting diallist
Account balance = $70500
Percent risk per trade = 2%
Dollars risk per trade = 2% times $70500 = $1410 (most you can lose)
Stop loss size = 47 pips (assume this is distance to last pullback)
Pip value = $10 (assuming were trading standard lots)
Position size (how many lots to trade)
= $1410/(47pips * $10)
= $1410/$470
= 3 lots
...would I enter 3 orders of 100,000 units (assuming a standard lot size) instead of 1 for 300,000? Is this the money management strategy you're explaining to risk the 2%? Or am I totally missing the boat?
  • #13
  • Oct 21, 2005 2:47pm Oct 21, 2005 2:47pm
Quoting The_Arbiter
Hi guys. Long time reader, first time poster.
In the example from the link...

...would I enter 3 orders of 100,000 units (assuming a standard lot size) instead of 1 for 300,000? Is this the money management strategy you're explaining to risk the 2%? Or am I totally missing the boat?
Either way is the same. They both work out to 300,000 units. However, an advantage of putting in 3 orders for 100,000 units is that you can then scale out of your trade by taking profit at three different profit targets. For example you could close the first 100,000 at 50 pips profit, then close the second 100,000 at 100 pips profit, and finally, let the remaining 100,000 lot run with a trailing stop.

Just curious, what broker lets you put in a 300,000 unit order? I think Oanda will, but who are you using?
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  • #14
  • Oct 21, 2005 3:29pm Oct 21, 2005 3:29pm
I'm demo trading on Oanda. When I click anywhere on the platform, I get the window attatched here. The first platform I used was from MG, so I went ahead put in 1, thinking it meant 1 lot. Turns out it means 1 unit. Since then, I've been using 10,000 and so on. What's cool, is that depending on how many units you use, you can see the value of each pip.
Attached Image
  • #15
  • May 3, 2006 6:06pm May 3, 2006 6:06pm
Quoting firehorse
Hi Jeff,

When I first started I was really confused too.

One thing that helped me was a spreadsheet I found here
http://eurusd.com/fxcalc.htm
You plug in all your currencies and numbers and it calculates your risk.

Regards
Alan
This link does not exist. Does anyone have an updated link?

Thanks.
  • #16
  • May 5, 2006 3:38am May 5, 2006 3:38am
Hi,
Quoting ngdaniel
This link does not exist. Does anyone have an updated link?

Thanks.
Just checked. It is now at http://www.alexdouglas.com/fxcalc.htm

Best regards
Alan
  • #17
  • May 5, 2006 4:16am May 5, 2006 4:16am
This sheet will calculate the position size based on the account size and risk percentage. Change the Acct and Risk % to reflect your account.
Example. Your account size is $5000 and you are willing to risk 2% with a 30 PIP Stop/Loss on the USD/JPY.
Based on this chart your max position size should be in the neighborhood of 39467, depending on current price.
Round down for platforms that do not allow precise unit size entries.
The prices are determined in realtime so the DDE server must be enabled in the MT4 platform for the updates to the Bid and Ask price.
This is designed to work with both the Strategy Builder and Interbank FX versions of MT4 but should work on any MT4 platform.
To Enable DDE in MT4 click on the Tools -> Options -> On the Server Tab - Click on Enable DDE then click OK.
Thank You
PS: If u wish to view the calculations or make changes the paswd to unprotect the .xls file is "risk" w/o quotes.
Attached File(s)
File Type: zip Risk_Position.zip   12 KB | 1,230 downloads
In trading, there is no bullshit. You either make money or you don't.
  • #18
  • Jun 19, 2007 3:55pm Jun 19, 2007 3:55pm
If anyone is still interested in this Fx calculator (calculates risk and position sizing) go to this link: http://www.alexdouglas.com/fxcalc.htm. It seems to very useful.

You now have give them your email address (or at least a fake one as the download is immediately available), but it is still free.

It requires Microsoft Excel (or Open Office).


Quoting ngdaniel
This link does not exist. Does anyone have an updated link?

Thanks.
  • #19
  • Jun 20, 2007 8:56am Jun 20, 2007 8:56am
Quoting superalf
If anyone is still interested in this Fx calculator (calculates risk and position sizing) go to this link: http://www.alexdouglas.com/fxcalc.htm. It seems to very useful.

You now have give them your email address (or at least a fake one as the download is immediately available), but it is still free.

It requires Microsoft Excel (or Open Office).

The usage license for this calculator does not mention any restrictions on distributing it, and it's free, so I will post it here for anyone that wants it (save you the trouble of filling out the form).
Attached File(s)
File Type: zip FX_Risk_Calc_790407.zip   88 KB | 928 downloads
  • #20
  • Aug 3, 2007 1:50pm Aug 3, 2007 1:50pm
  •  tazmet
  • | Joined Jun 2007 | Status: Gold Member - Solid Gold Baby! | 47 Posts
This is a great calc as far as checking your math if you want to know how many units equal what risk % to your account. But you can't first set your risk % and have it calculate the units which is what I needed it to do. Guess I need to create my own Excel spreadsheet.
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