How to calculate trade lot manually
The main subject upon which we will touch is a ratio of the amount of a deposit with permissible values of risk and also we will learn to count the size of trade lot manually.
1. The recommended risk on the transaction should not exceed 3% of the amount of a deposit. Besides the admissible risk has to be fixed within your trade strategy. In case your trading system brings you, you will be able to keep the necessary amount of funds on a deposit that later, having reconsidered the trading system, noticeably to increase it.
Let's say the risk sum at a deposit of $100 and risk on the transaction in 3% will be $3, and at a deposit in $1000, respectively, it will be $30 and, say, at a deposit in $7000 the recommended risk will be 210 dollars.
The deposit Risk on the transaction (3%)
2. The recommended relation between Take Profit and Stop Loss has to make not less than 2 to 1, and at the same time it is possible to take a bigger ratio, and smaller is not strongly recommended.
3. Also, it is very important (and further we still will return to it) to determine the cost of 1 point, that is cost of the minimum change in price:
Lot Cost of 1 Point
The cost of one point is not always equal to $1 (at lot 0.1). Depending on currency pair cost can differ from specified. However, in most cases cost is close to $1 therefore we can round it to $1 for simplification. In case of need you can learn the exact cost of point for concrete couple by means of lot calculator.
For example, in case of couple of USD/RUB and dollar as deposit currencies we buy dollars for rubles, respectively, we need to transfer ruble points to dollars. Upon purchase of 10000 units of currency (0.1 lots) calculation will look so: margin * point size * course RUBUSD = $10000 * 0.01 * 0.016 = 1.6
And now, having acquired risk management bases, we can calculate risk, directly:
Let's say we buy AUDUSD at the price 0.7674 and we expose stop loss on 0.7644.
So, a deposit at us is $1500, and admissible risk on the transaction = $45, that is 3% as you remember;
Stop loss at us made 30 points as we entered on 0.7674, and stop loss was exposed on 0.7644. That is, if to take away 0.7644 from 0.7674, then we will receive 30 points;
The maximum lot at us turned out 0.15 … How did we calculate such trade volume?
We look … the minimum trade volume (lot) at us is 0.01 lots, respectively, the cost of point is equal to $0.1;
loss in dollar expression we will count stop as follows: let's increase stop loss in points, that is 30 points, by the cost of the minimum change in price which is at us $0.1. 30*0.1 … $3 turn out. It turns out, minimum possible risk on the transaction is $3;
So, we remember that our admissible risk on the transaction is $45, and the minimum volume for risk at us $3, and it means that the maximum volume for the auction corresponding to the maximum risk on the transaction is considered as follows: 45/3=15, that is we divide the sum of admissible risk into the minimum volume in dollar expression. Then what minimal risk on the transaction we can exceed by 15 times that, in turn, corresponds to 0.15 lots - it is and there is our maximum allowed volume for trade. In other words, at a deposit in $1500 and admissible risk in 3% of a deposit we should open positions in 0.15 lots;
In other words, we receive the following simple formula for calculation of risk: Lot size = max. risk (in $) / stop loss (in points) / the minimum cost of 1 point * the minimum trade lot
Finally it would be desirable to add several useful recommendations which will help to customize your risk management system even more effectively:
Not to increase risks, we advise to round down the calculated lot size. That is, returning to the last example, we remember that lot size at us turned out 0.918, so we round it to 0.91;
Also we advise you to test your strategy on history and to determine average size stop loss that will save you from need every time to substitute new and new values. Having calculated your average stop loss, you will need only to substitute the amount of a deposit and value of admissible risk in a formula while stop д, the minimum cost of one point and the minimum lot will be already obviously known;
Besides, it is very important to consider spread when determining the size of feet of a loss. For example, if your stop loss equals to 30 points, and spread = 2, then the calculated value of feet of a loss will equal to 32 points;
Well and finally, do not risk over the norm established by you personally within your trade strategy. Never, even at absolute confidence in control over a situation. Limiting the intemperance in the short term, you shake fruits in long-term!
Also, if you do not want to calculate risks manually, we recommend to you to use the convenient calculator for calculation of trade lot.