Risk Calculation in Forex Trading?

Brokers now offer micro lots which enable us to accurately use a certain percentage of our account on each trade, a micro lot is 0.10c a pip giving us far more flexibility especially for smaller accounts.

Let’s run through a quick example using a random $5,436 account. We spot a setup on the EUR/USD and require a 60 pip stop to give our trade plenty of breathing room and get the stop behind the recent resistance level.

To find 2% of our account we…..

Divide $5436 by 100 then times by 2 = $108.72 which is 2% of the account size.

So we can risk $108.72 on this trade, now we need to find out what position size to place on this trade.

$108.72 divide by 60 pip stop = $1.81 To find the number of micro lots we divide $1.81 by 0.10c = 18 micro lots.

To summarise placing 18 micro lots on this trade, risking 60 pips will risk exactly 2% of our trading account. On the next trade you will calculate this all over again using the new balance on your trading account, if your trade was a success then your new risk will be slightly higher that the previous one.

This is how we rapidly build our trading accounts compounding profits and using them to create even more profits. Money management is not only about what to risk on each trade. That alone will not save your bacon if you are a trading maniac who must be involved in the market no matter what.

What ever size your trading account is treat it like gold, if you are at all unsure of a trade then skip it, like bus’s there will always be another one along soon enough. You must not feel the need to trade, I very often do not trade Mondays which only leaves 4 days a week to look for setups yet I still turn profit and the more patient I become, the smoother my equity line increases and the more wealth I build.

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