Good day, fellow Forex traders! Today we will talk about how to calculate risks when trading Forex.
As you might have guessed, risk management (or risk management) is one of the key conditions for effective work in the Forex currency market, and without its use, you can quickly lose all the funds in your trading account. The main topic that we will cover in the lesson is the relationship between the deposit size and acceptable risk values, and we will also learn how to calculate the trading lot size manually. After all, all kinds of auxiliary indicators are good, but you shouldn’t forget mathematics)
How to calculate a lot manually on Forex
Lot on Forex
This term refers to position volume . We agreed to assume that 1 lot is equal to 100 thousand units of the base currency in the pair (the base is the currency that comes first in the designation of the currency pair). Examples:
- 1 lot of EURUSD is equal to €100,000 or $113,630 (the euro/dollar exchange rate at the time of preparation of the material was 1.1363).
- 1 lot of GBPUSD is already equal to £100,000 , taking into account the current rate of $1 = 1.3203 in dollars, the lot will be $132,030.
- for USDJPY everything is simpler - a lot is equal to $100,000 .
- According to the cross , for example, AUDNZD 1 lot means 100,000 Australian dollars, taking into account the AUD to American exchange rate, this amount is $70,757.
Fractional units
In addition to the standard volume of 100 thousand currency units, fractional values are also used:
- Mini . As for how much currency a mini lot is equal to on Forex, compared to a standard or classic one, it is reduced by 10 times and is equal to 10,000 units of the base currency.
- Micro - unit of volume in this case is reduced to 1000 .
In order to lower the entry threshold, brokers allow trading with leverage , that is, borrowed funds are used that the company temporarily issues to the trader. An article on how to use leverage will soon appear on the site, I recommend that you read it.
Brokers open so-called cent accounts so that traders can practice trading with real money without large investments. For clarity, I will give the characteristics of a sell transaction with a volume of 1 lot for a regular, mini and micro account for the EURUSD pair. As you can see, all indicators are simply reduced by 10 and 100 times, respectively. On the one hand, we get a smaller load on the deposit, on the other hand, the profit also decreases.
| Characteristic | Classic score | Mini account | Micro account |
| Contract size (amount of currency in a lot), $ | 113 650 | 11 365 | 1136,5 |
| Deposit, $ | 11 365 | 1136,5 | 113,65 |
| Point price, $ | 10 | 1 | 0,1 |
| Swap, $ | +1,95 | +0,195 | +0,0195 |
Position Size Limits
Brokers usually have restrictions on position size. That is, you cannot enter the market for 200 lots at once. For what purpose this is done is quite difficult to say. There can be several reasons for the limit value that is applied to a lot on Forex:
- The most logical thing is to reduce the risks of a very rapid decrease in the score and the potential for it to go to negative values . In this case, all losses in excess of the account size are borne by the broker. This can only happen if there is very strong slippage. But since we are talking about a huge amount, extra caution on the part of the company would not hurt. Moreover, lovers of large leverage usually “dabble” with positions of this size. And with an indicator of 1:500, only 20-30 points and a full deposit load are enough to completely reset. As a rule, the limit is 50-100 lots for Forex and even less for other trading instruments, such as CFDs.
- Possible difficulties with the aggregate position for transfer to the liquidity provider . There is almost no logic here; rather, it is a kitchen method of work, and the broker is afraid of the client’s big profit, even if it happens by accident.
- Technical limitations of hardware or software.
It is also not uncommon to have a maximum total position size for one instrument. It is usually 100-150 lots. When contacting support, some reputable brokers can increase this limit, but at the same time they will reduce the leverage indicator, that is, they will also insure themselves against possible large losses due to sudden movements, when even the stop out does not have time to work.
As a rule, all such information is presented on the company’s website in the trading conditions section. Experienced traders already know about this, but beginners with a very large starting capital (and this happens!) may be very surprised to find that a position cannot be opened. Also, such a restriction can greatly hinder those who use locks, that is, they lock positions and open in both directions. In this case, the total volume is calculated differently for all brokers, so it is better to look at all the values and examples of calculations in advance.
Method for selecting a safe lot
I constantly advise beginners to first prioritize not profit, but the reliability of trading . This means that at the start, and then too, you need to reduce the risk to a minimum, preferably within 1-2% of the deposit per transaction.
In the example, we will look at how to calculate a safe lot for the same transaction for deposits of $200 and $1000 . The entry point is shown below - buy at a retest of support after a reversal pattern.
Initial data
- SL – 52 points , USDJPY at the time of calculations is 111.85 . Classic account type .
- Deposits – $200 and $1000 .
- The acceptable risk for the transaction is 2% of the deposit .
- It is necessary to perform a lot calculation on Forex - to determine the maximum volume under which money management will not be violated for these conditions.
Procedure
- We determine acceptable losses in the deposit currency. For our example, the SL in cash is 0.02 x 200 = $4 and 0.02 x $1000 = $20 .
- One point under such conditions should cost no more than 4/52 = $0.077 and $0.385 for deposits of $200 and $1000, respectively.
- From the formula for calculating the price of an item, we derive the dependence for determining the maximum allowable volume.
Point Value = Lot x Pips / Exchange rate to dollar
From it we get:
Lot = Point Value x Exchange rate to dollar / Pips
In our example , for a deposit of $200, the maximum allowable volume for a transaction will be:
Lot = 0.077 x 111.85 / 0.01 = $861.245 or 0.0086 lot .
For a deposit of $1000, using the same formula, the volume will be:
Lot = 0.385 x 111.85 / 0.01 = $4306.22 or 0.043 ≈ 0.04 lot .
A problem arises - the broker set the minimum volume at 0.01, and for a deposit of $200 it should be 0.0086. So you will have to either reduce the stop, or miss the signal, or top up your account. As an option, a small violation of the MM , but this is where the loss of the deposit begins. Small deviations from the rules eventually turn into complete disregard for them . I recommend reading my educational program about margin calls to understand the dangers of violating money management.
I deliberately showed the most detailed calculation possible . After a little practice, you can estimate the transaction volume almost in your head. But you need to understand the theory. The video below shows a couple more examples with calculations.
Calculation example
Each speculative operation requires an individual approach. Thus, the same lot when trading different currency pairs requires different collateral. It depends on the base currency. As you already know, the base one is the one that comes first in the pair. In the USD/CHF pair, the base is considered to be the dollar, and in the GBP/USD pair, the pound is considered.
Let's solve the trading problem:
- Currency pair: GBP/USD
- Deposit: USD 30,000
- Leverage: 1:1000
- Stop-loss = 50 points.
- Cost of 1 point = 10 $.
You need to calculate how much volume it is safe to enter the market.
As we found out, the risk should not exceed 2%. 0.02 * 30,000 = $600. This will be the maximum risk on the transaction. According to the Stop Loss size, the price of 1 point will be up to $12.
We calculate the lot size using the formula: 1:10 = x:12, where x = lot size.
Using simple arithmetic we get x=1.2 lots.
In this way, you can calculate the size of transactions on different currency pairs. This calculation formula works similarly for all currency pairs. Nothing complicated, but there is an even simpler option - use a Forex calculator or indicators.
How to make calculations easier?
For the convenience of traders, brokers post online calculators on their websites. I will briefly go through the functionality of each of them.
- Forex4You – depending on the account type, all indicators are displayed, including swap in both directions.
This Forex lot calculator allows you to track the result of 5 transactions simultaneously . The volume, entry and exit prices are indicated, and as a result, in addition to the swap, spread, and margin, we also get the expected result for each transaction and for the portfolio as a whole.Start trading with Forex4you
- U Exness The functionality is similar to what Forex4You offers, but you can additionally select deposit currency, and the calculations will be shown there.
Open a cent account with Exness
- IN AMarkets The calculators were divided. Separately for margin, volume, point value. In addition to this there is also third party algorithms, but I would recommend using your broker's calculator. It is guaranteed to take into account local peculiarities.
For example, there is an option to select a cent account or deposit currency; this may not be available in custom algorithms.
We have already discussed what a cent account is in Forex. Open an account with Amarkets
]]>Advisors and scripts for lot calculation
A simple script to calculate lot size
From the rules for money management when trading on financial markets, it is known that it is better not to risk more than 1-3% of the deposit amount in one transaction.
Accordingly, the task is set how to calculate the size of a trading lot taking into account the established risk in percentage. If you have already figured out how this is done, you can simplify the process using a special script that calculates the lot size for opening a transaction depending on the percentage of the deposit.
The script is installed in the Meta Trader 4]]>\MQL4\Scripts folder. After that, restart the terminal and find “raschet_lota” in the Scripts section.
Drag the script onto the chart of the currency pair for which you want to calculate the lot size.
The percentage of the deposit you want to risk is set in the MaxRisk variable (the default value is 5, i.e. 5% of the deposit).
Calc indicator for MetaTrader 4
The Calc indicator, or as it can also be called a “Graphical calculator,” performs a very useful job; it calculates the level of stop, profit, as well as the level at which a stop out occurs, if, for example, a trader does not set or forgets to set a stop loss.
Mt4mm - script for calculating the position size of the Forex currency market
A plugin for MT4, which interactively allows you to calculate the lot size for the selected instrument depending on the current balance (or equity) and loss limit, and then place an order with the specified parameters (or several orders simultaneously for one instrument).
How to set the transaction volume in MetaTrader
This parameter is specified in the order settings field:
- Click Trade — New order.
- In field Volume either select it from the drop-down list, or specify it manually. You cannot set a lot below 0.01.
- All that remains is to put stop And take profitand then press Sell or Buy.
If the 1-click trading mode is activated, the volume is indicated in the upper left corner. The corresponding field is located between the Buy and Sell .
When trading, do not forget to take into account the difference between Bid and Ask prices . Read the post about the spread when buying an asset, where this issue is discussed in more detail.
Lot calculator
The good thing about a Forex calculator is that it does all the calculations on its own. And thus makes routine work automated. This is a fairly convenient mechanism, which in its calculations takes into account the size of the contract, the deposit and the value of the item, depending on the lot specified in the settings.
The best brokers with minimal spreads and slippages
Below I will list 2 companies with good trading conditions.
Exness
Cent , Mini , Classic , ECN accounts , the leverage is adjustable in a wide range. In addition to dozens of currency pairs, CFD on crypto and other instruments is available. The commission on ECN accounts is $25 per million traded , the spread on the majors is very narrow, less than a point during peak activity hours.
Open a cent account with Exness
AMarkets
Standard , Fixed , ECN (from $200), Institutional (from $100,000) accounts The spread is slightly higher than that of Exness; for majors it does not fall below 1.3-1.5 points. Trading is carried out in currency pairs, there are CFDs for crypto , metals, indices and other instruments.
Get started with Amarkets
I would also like to note the very fast execution by both companies. There is practically no slippage .
Calculation using indicators
Many traders use tips from automated assistants - indicators - for trading calculations. The lot calculation indicator works according to a specific algorithm, calculating the optimal transaction volume taking into account money management. The calculation indicator is a universal advisor that suggests the size of trades, but cannot predict currency movements or provide guaranteed buy or sell points.
Many brokers offer this service. You can download the necessary software and use it in your work. For the MT4 terminal, calculation indicators are used: MAX LOT, MoneyManagement, Lot Calculator, RiskManager.
Lot is an important value in Forex. Risks and profits depend on its value. Don't neglect risk management. Always limit your possible losses. Set limiters (stop loss, take profit). Use assistants and advisors. Decide on a trading strategy. And you will certainly become a trading guru. Read about all this and much more in our articles.
Volumes on the stock exchange
We’ve figured out what a lot is in Forex, now let’s find out what it means when working with stocks. The difference is that its value is not fixed , it depends on:
- Venues . For example, on AMEX , NYSE , CME , NASDAQ , the lot volume is fixed and is 100 shares. On the MICEX after 2011, it may include 1, 100, 1000 securities.
- How many shares are in a lot depends on their value. The cheaper the papers, the more there are in the lot .
This information is indicated in the paper description. Above is an example for Sberbank , 1 Lot includes 10 shares .
Inter RAO paper is cheaper than Sberbank. Therefore, 1 Lot already includes 1000 shares :
In the stock market, as in Forex, trading in incomplete lots is possible. So the trader can regulate risks here too.
How does equity change depending on lot size?
Equity is the free funds on deposit received after deducting the margin from the total balance. The lot size affects the equity precisely through the margin, which is the key to completing the transaction.
Margin is affected by two factors:
- Lot size,
- And leverage.
By multiplying the deposit by the amount of leverage, we get the amount that we can manage when concluding transactions.
That is, having a thousand dollars on deposit, with a leverage of 1:100, we already receive 100,000.
To enter the market with a mini lot, you will need a deposit of $100. This is the margin.
Accordingly, if the leverage increases to 1:1000, we have 1 million on the conditional deposit, and entering the market with a mini lot, the margin will be only 10 dollars.
It turns out that the larger the lot size on Forex, the higher the margin required to secure the transaction, and therefore the equity decreases.
At the same time, working with the same deposit and lot, but different leverage, the margin level will change. At 1:100 and a lot of 0.1, the margin will be approximately 100 (depending on the real value of the lot on the selected asset) dollars, and at 1:1000 only 10.
Brokers for working on the stock market
It is better to start working on the stock exchange with a trusted broker. I suggest you choose one of the following companies:
- BKS – the best choice for the Russian market. In addition to Russian securities, you can also work with the US market.
I will note a single account from which work is carried out through QUIK; you can trade securities of Russian and more than 800 American issuers (through the St. Petersburg exchange ). The commission is 0.07% for turnover up to $15,000 and decreases with increasing turnover. You can also work on Forex, and the deposit in this case is from $1. Leverage 1:1-1:200 . It is possible to work with ETFs .
Open an account online at BCS - Just2Trade – ideal for the American market. It also supports working with ETF.
Leverage is up to 1:50, and among the features I will highlight the MMA account (single account), through which access to any trading platform in the world is organized. To start trading, just top up your account with $200 .
The minimum lot of shares depends on which platform you connected to. Open an account for the US market on just2trade
Start your acquaintance with the stock market with one of these companies - you won’t go wrong.
Lot types
There are several types:
- Micro (the smallest, is only a thousand US dollars and is designated as 0.01).
- Mini (medium, is 10,000 units and is designated 0.1. Often this is the amount that traders speculate on the market).
- Standard (as we already found out above, this is 100,000 b.v. units)
Work on the exchange is carried out not only in whole lots, but also in fractional ones (for example, 40,000 units or 0.4 lots, 5,000 units - 0.05 lots).
Accelerating your deposit on Forex: a strategy for making money quickly
Summary
Understanding what a lot is in trading is necessary in order to adequately build your risk management . This will allow you to calculate the volume in each transaction so that money management is observed, and set a stop without violating the strategy.
The situation is the same with the stock market. The only difference is that a lot is calculated in a certain number of shares, and not in units of the base currency. If you have any questions about calculating transaction volumes, I will be happy to answer them in the comments . Don't hesitate to ask anything that seems unclear. Don't forget to subscribe to my blog updates. Materials are published regularly, and a subscription ensures that you do not miss the next publication. With this I say goodbye to you, all the best and see you soon!
If you find an error in the text, please select a piece of text and press Ctrl+Enter. Thanks for helping my blog get better!
Recommendations:
Finally, I would like to add a few useful recommendations that will help you set up your risk management system even more effectively:
- In order not to increase risks, we recommend rounding the calculated lot size down. That is, returning to the last example, we remember that our lot size turned out to be 0.918, which means we round it up to 0.91;
- We also advise you to test your strategy on history and determine the average stop loss value, which will save you from the need to substitute new values every time. Having calculated your average stop loss, all you have to do is substitute the deposit size and the acceptable risk value into the formula, while the stop loss, the minimum cost of one point and the minimum lot will already be known;
- In addition, it is very important to take the spread into account when determining the size of the stop loss. For example, if your stop loss is 30 pips and the spread is 2, then the calculated stop loss value will be 32 pips;
- And finally, do not take risks beyond the limits you personally set as part of your trading strategy. Never, even with one hundred percent confidence in control of the situation. By limiting your intemperance in the short term, you will reap the benefits in the long term!
- Also, if you do not want to calculate risks manually, we recommend that you use a convenient calculator to calculate a trading lot.
Thank you for your attention and see you again, friends!
Best regards, Alexey Vergunov TradeLikeaPro.ru
Examples of risk calculation in the Forex market
You can consolidate your knowledge with several examples. If we proceed from the deposit size of 500 USD (half as much as previously taken into account), then the acceptable risk of 3% will be 15 USD. Stop Loss is set at 30 points. Considering the formula for calculating the lot size: 15 USD / 30 points / 0.1 USD? 0.01 = 0.05. As a result, the working lot size is 0.05. This volume applies to any major currency pair, such as GBPUSD.
In the following example, we can consider an even lower acceptable risk percentage - 2%. The deposit size will be much larger - 5,000 USD, while the maximum risk will be 100 USD. Stop Loss will be 40 points. Substituting all the data into the above formula, you get: 100 USD / 40 points / 0.1 USD ? 0.01 = 0.25. In this case, a lot of a larger volume was calculated.
Features of money management when carrying out calculations
In order to calculate everything correctly and work safely on Forex, you need to correctly calculate the lot size and take into account the size of your deposit.
It is also necessary to take into account the price of one point in the standard trading volume. The lot size affects the pip value and margin on open positions; as the size increases, the potential income/loss also increases.
Beginner traders are advised to always start with 0.01 for brokers with four-digit quotes and with 0.001 for five-digit quotes.
An important concept in trading is acceptable risk - the amount of money that a trader is willing to sacrifice in any one transaction, including unsuccessful ones, if the price does not go in the predicted direction and reaches the stop loss level.
When looking for information on how to calculate lot size in Forex, many traders take different paths:
1) You can use a special formula:
X = (R x B) : (T x (P1 – P2) , where:
- R – percentage of the deposit that can be risked
- B – deposit amount
- T – long/short trade ratio (put -1 for a short position and +1 for a long position)
- Р1 – cost of opening a position
- Р2 – cost of closing the transaction (stop loss)
If we give an example where there are 10,000 US dollars in the account, the EUR/USD currency pair is being traded, it is planned to open a sell transaction at a price of 1.0698, and close a losing position when the value reaches 1.0200, it turns out: X = (2% x 10000) : (1 x (1.0698 – 1.0200) = 4016. It turns out that the ideal trade volume is 4016 dollars units.
To quickly check the calculations, you can calculate:
with a volume of 10,000, currency pairs with USD as the quoted currency show a pip price of 1 dollar. That is, with a volume of 4016, the price of one point will be 0.4016. If you multiply this number by 498 points that the price will pass if the calculation is incorrect, you will get the acceptable risk level: 200 (if you do not round to 4016). This is 2% of the deposit amount.
These calculations are relevant for currency pairs such as XYZ/USD and USD/XYZ, but are not relevant for cross rates.
2) The planned lot volume, taking into account money management, can be calculated in another way. You need to know the number of points from the stop loss to the entry point and the percentage of the working lot in relation to the total deposit amount.
The deposit amount is multiplied by the percentage that can be lost in a losing trade. The resulting value is divided by 100 - this amount can be lost in case of failure. Then the amount is divided by the number of points that the price can pass before the stop loss and the resulting value is multiplied by 0.1. The result is the volume that can be traded in one transaction.
If we take the same example ($10,000 on deposit, 2% can be lost, stop loss is set at a distance of 498 points from the entry), it turns out:
(10000 x 2%) = 200, (200 : 498) x 0.1 = 0.040 (rounded from 0.04016...). It turns out that you can trade 0.04 lots, and this is 4016 dollars received in the previous formula.
Rules and restrictions, automatic calculation
If a trader wants to trade large funds with a small balance, he selects the appropriate leverage value.
A broker can lend funds for trading, but this significantly increases not only profits, but also losses. Therefore, there are no special restrictions on the Forex market - you can trade with several hundred in your account. The size of lots can be regulated and is mandatory in some financial markets - for example, for work on the MICEX, the minimum values change, which affects the price of the minimum transaction. The data is displayed in a table, and the publication of changes significantly affects changes in the value of assets.
A special calculator can quickly and accurately calculate the required values.
All you need to do is select the required values, enter the data correctly, and the optimal transaction volumes will be calculated automatically.
