What lot size to use in Forex trading?
I will share with you a simple guide, that will help you to calculate a lot size for your forex account easily.
WHY?
In brief, let me explain to you why you should calculate a lot size for your trades.
If you trade Forex with Fixed lot, you should be extremely careful.
Too big lot size may lead too substantial losses or even blown trading account, while with a too small lot you may miss good profits.
HOW?
To calculate the best lot size, follow these 6simple steps.
1.Make a list of all Forex pairs that you trade
Let's say that you trade only major forex pairs:
EURUSD,
GBPUSD,
USDJPY,
USDCAD,
NZDUSD,
AUDUSD
2. Back test every pair and identify at least 5 past trading setups on each pair
Above, you can see 5 last trades on each 6 major forex pairs.
3. Measure stop losses of each trade in pips
You can see that I went through all the trades and wrote down all stop losses in pips.
4. Find the trade with the biggest stop loss in pips
In our example, the biggest stop loss in on GBPUSD pair.
It is 34 pips.
Remember this number and the name of a currency pair.
Why we need to do that? Your lot size will primarily depend on your risk in pips. For example, scalpers may have 10/15 pips stop losses, while swing traders may have even 100 pips stop losses.
5. Open a Forex position size calculator
I recommend using babypips calculator.
6. Fill all the fields
Input your account size, 2% as the risk ratio and a currency pair with the biggest stop loss (GBPUSD in our example).
In "stop loss in pips" field, write down the pip value of your biggest stop loss - 34 pips in our example and press calculate.
For the account size of 1000$,
the best lot size to use 0.05 standard lot.
The idea is that your maximum loss should not exceed 2% of your account balance, while the average loss will be around 1%.
Remember to carefully back test your strategy and know exactly your maximum risks in pips, to make proper calculations!
