Help calculating lot size

Hi All, I need help, but I am a bit embarrassed to say the least

I am struggling to work out lot size based on leverage and stops and account size.

Seeing as the brokers are not that good at honouring stops, what I want to do is use minimum allowable balance to be used as an automatic stop...

So, let's say I have US3000 in my account, I want to trade and risk 50% of the account, with my intended stop loss being 20 pips for example and my account is on 1:400 leverage.

How would I work out my lot size in order for the broker to close my trade due to minimum equity requirements no longer being met when the trade is in the hole by 20 pips...does that make sense?

Hope some one can help

Thanks

Hannes

Hi Hannes, it's pretty simple once you get used to it.

Alright, so first it depends on what sort of account you have, is it a mini, micro or standard account?

I'll assume it's a micro in this case.

So let's say you want to risk 50% of your account on a single trade (which is crazy for what it's worth) you simply divide 1500 (50% risk) by 20 (pips). So each pip in this case can be worth $75. That would be 7.5 standard lots for most currencies.

If you were calculating a more standard risk amount like 2%, you simply multiply 3000 by 0.02 (2%) which gives you $60. You then divide 60 by 20 (pips risk) and you can see that each pip move needs to be worth $3 or less, which is 3 mini-lots or 0.3 in some MT4's.

Hope that helps, like I said, with some practice you'll be calculating all these very quickly

Hi there Tradedream, many thanks for your reply, I appreciate it.

I don't know if I am going about this arse about face though (ito explaining what it is that I want to do)

I understand what it is that you have explained...but...doing it this way, will it result in my trade being closed by the broker due to margin call / equity level stop out should I reach that level of 20 pips in loss? Can you believe it, I have not been able to find a losing trade of 30 pips...perhaps I should trade like that all the time

I just don't trust my broker to close out my position with a stop, so I thought if I do it this way around, they will close it automatically...

TradeDream,

That was an AWESOME explanation dude.

But now for the confusing part (as though figuring lot size wasn't enough), where does margin fit into the equation? 1:25 and 1:400 are two very different animals.

He who tackles this one gets a blue ribbon and a tee shirt at participating internet outlets...j/k

Hannes, I really don't think you should be so worries about the brokers and your stops, I've been trading now for over six years and the only time your stops will act dodgy is generally around big news evens where liquidity can be a little crazy. Try it out, just risk 0.5% or 0.25% using the calculation I showed you and place your stop 20 pips away or whatever, and let price hit your stop. You'll lose some money but it might help you overcome your fear. Remember a stop position is like any other position, it's just an order in the market. If there's someone else at that price on the opposite side of your trade (which there almost always is), you'll be taken out.

ocd, margin is very different but only becomes an issue when you're trading like a crazy person!

I mean, if I'm risking no more than 1 or 2% on my trading account, the account margin really doesn't matter. So say my account is 1:400 like in your example, it just means that I'm required to put in much less of a "security deposit" in my account to trade bigger lot sizes. That's a non-issue if I'm not trading like a maniac, and if I'm only willing to risk small %'s of my account.

One of the more popular brokers at 200:1 leverage says you only need $5 margin in your account to trade $1,000 lots (micro-lots). That means in your example, if my account only had 25:1 leverage, if my account got below $40, I'd get a "margin call" and the open trade would be closed.

I don't think anyone who's seriously trading for long term results with reasonable risk limits should worry about it too much to be honest, I never have.

Hi HannesJoub,

The thread is quite old however diallist compiled a wonderful rundown of these calculations including examples and goes further to cover things like asymmetrical leverage for when you feel like getting right into the details. There's a lot of other great information in there as well I hope you find valuable.

http://www.forexfactory.com/showthread.php?t=6948

if "i" were risking 50% per trade, "i" wouldn't have to worry about lot size for very long......
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enivid has a very good web based lot size calculator..... and, as typical for him, he even went so far as to provide the mq4 and mq5 indicators free for us......h

Good explanation and good web calculator.