The easiest way to use the calculator to calculate the value of the lot on the forex.
Why even calculate a lot of sizes:
- Optimization of the position volume in relation to the deposit amount, taking into account the risk and the desired return on investment, allows you to balance the trade.
- The correct selection of the lot and the procedure for increasing the position allow you to choose a trading mode in which the general position of the trader will be resistant to drawdowns, corrections, kickbacks, and volatility.
The above was an example of what a lot in Forex is and how its volume is formed. One of the forums provides an interesting example of calculating a lot “from the contrary”, based on the level of risk. As already mentioned above, 1 point on one standard lot gives an average of $10 profit. Or a loss, depending on which direction the price will go. An analysis of the statistics on the instrument shows that corrections on the currency pair can reach 20 points, that is, a loss can reach $ 200. There are two approaches:
- The approach of taking the average value of volatility as the basis. It allows you to increase the volume of the lot in the framework of the inherent risk. The trader assumes that the average (most probable) loss can be, for example, only 10 points, therefore he opens a deal with a large volume (uses larger leverage). But then the deposit remains unprotected against abnormal volatility – a loss of 20 points can lead to the closure of stop-out transactions.
- The approach of taking as a basis the worst-case scenario – maximum drawdown. The maximum possible volatility is taken as a critical point, that is, a stop loss of 20 points is taken into account. In this case, you will have to reserve more money, but such a system will be less risky.
Do not forget to add a spread to the calculated stop loss setting level.
The risk management strategy should also provide for the maximum risk of the transaction. The theory recommends keeping a mark of no more than 5%. If we assume that in our example, the potential loss of $ 200 is 5%, then to trade 1 lot within the acceptable risk with predicted volatility of up to 20 points, you will need a deposit of $ 4,000. There is not so much money – we reduce the volume of the lot.
Another guideline is the amount of collateral that the broker reserves when using leverage. In theory, it should not be more than 10-15%, but this guideline is not the main one. Firstly, the greater the leverage, the less the collateral. Reduced collateral pushes to open transactions in a large volume, increasing risks.
From the above examples, I think that the principle of calculating the lot should be clear. The trader evaluates his deposit, decides on the appropriateness of applying leverage, in accordance with the risk management (acceptable level of risk per transaction and general position) determines the target volume, translates it into lots. In practice, everything is somewhat more complicated, since currency pairs are different and sometimes it is necessary to calculate the value of a point in those pairs where USD is not and a cross rate is required. Most companies offer their own calculators on the sites for help, the general essence of which is the same: the trader indicates the currency pair, lot size, position direction, the calculator calculates the point value and profit (loss) based on current quotes.
As an example, I’ll give the LiteForex trader’s calculator, which, like other analogs, is convenient, but not without drawbacks. It allows you to calculate the amount of loss or profit on such input data as a currency pair, position volume, transaction direction, type of account and leverage.
Keep in mind that for one standard micro lot, the price of a point is $ 0.01, not 0.1, as I wrote above. The reason for this: 5 decimal places in the quote instead of the 4 usual ones.
The ability to calculate the risk is not provided, it will have to be done manually. And one more minor inconvenience – there is no way to set leverage of 1: 1. Let me remind you that the amount of leverage does not affect the risk if there is a clearly defined goal in terms of position volume. With a constant lot size, a change in leverage only affects the amount of the deposit.
When calculating the value of a point, you should pay attention to what the display of a currency pair is. For example, the price of a point in a pair of EUR / USD is $ 10 with a standard lot on Forex. In the pair USD / JPY, the value of a point will be equal to less than $ 9. The calculation formula, in this case, will be as follows: (1 point * lot size) / market price. An example of the calculation result is given below.
Almost all trader’s calculators have one and the same problem: there is no way to calculate the lot size with reference to the level of risk, although this is precisely the meaning of the planning of trading volumes. I propose to use the following formula to calculate the lot with reference to the level of risk:
Lot volume = (% risk * deposit) / A * (Price 1 – Price 2)
% of risk – this is the amount of the deposit that the trader is ready to allocate for the transaction (the same notorious recommended 5%, which I wrote about above). A is a coefficient equal to one for a long position, for a short one – a unit with a minus sign. Price 1 and Price 2 – opening price and stop loss level. The stop loss level, in this case, is one of the options for interpreting the average or maximum volatility, which I also wrote about above.
How to calculate a lot on Forex. Example. The following inputs are available:
- Deposit: $ 3,000.
- Risk – 5% per trade.
- The leverage is 1: 100.
- Stop length – 50 points.