How to Calculate a Trading Lot Manually
Good day, fellow forex traders! Today we will talk about how to calculate risks when trading Forex.
As you may already have guessed, risk management is one of the key conditions for effective work in the Forex currency market, and without applying it you can quite quickly lose all the funds in your trading account. The main topic we will cover in this 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 should not forget mathematics either)
So, Let Us Start with the Very Basics
1. The recommended risk per trade should not exceed 3% of the deposit size. In addition, the acceptable risk should be fixed within your trading strategy. If your trading system lets you down, you will be able to preserve the necessary amount of funds in the deposit so that later, after reviewing the trading system, you can noticeably increase it.
Suppose the risk amount with a $100 deposit and a risk per trade of 3% is $3, and with a $1000 deposit, accordingly, it will be $30 and, say, with a $7000 deposit the recommended risk will be $210.
| Deposit | Risk per trade (3%) |
| $100 | $3 |
| $1500 | $45 |
| $7000 | $210 |
2. The recommended ratio between Take Profit and Stop Loss should be at least 2 to 1, and at the same time you may take a larger ratio, while a smaller one is strongly discouraged.
3. Also, it is very important, and we will return to this later, to determine the value of 1 point, that is, the value of the minimum price change:
| Lot | Value of 1 point |
| 0,01 | $0,1 |
| 0,5 | $5 |
| 0,1 | $1 |
The value of one point is not always equal to $1 (with a 0.1 lot). Depending on the currency pair, the value may differ from the one indicated. However, in most cases the value is close to $1, so we can round it to $1 for simplicity. If necessary, you can find the exact point value for a specific pair using the lot calculator.
For example, in the case of the USD/RUB pair and the dollar as the deposit currency, we buy dollars for rubles, so we need to convert ruble points into dollars. When buying 10000 units of currency (0.1 lot), the calculation will look like this: margin * point size * RUBUSD rate = 10000 * 0.01 * 0.016 = 1.6$
Formula for Risk Calculation
And now, having learned the basics of risk management, we can directly calculate the risk itself:
- So, our deposit is $1500, and the acceptable risk per trade = $45, that is 3%, as you remember;
- Our stop loss came to 30 points, because we entered at 0.7674, and set the stop loss at 0.7644. That is, if we subtract 0.7644 from 0.7674, we get 30 points;
- Our maximum lot came to 0,15... How did we calculate such a trading volume?
- Let us see... the minimum trading volume we have is 0,01 lot, accordingly, the point value is $0,1;
- We will calculate the stop loss in dollar terms as follows: we multiply the stop loss in points, that is 30 points, by the value of the minimum price change, which in our case is $0,1. 30*0,1... The result is $3. It turns out that the minimum possible risk per trade is $3;
- So, we remember that our acceptable risk per trade is $45, and the minimum volume for risk is $3, and this means that the maximum trading volume corresponding to the maximum risk per trade is calculated as follows: 45/3=15, that is, we divide the acceptable risk amount by the minimum volume in dollar terms. It turns out that we can exceed the minimum risk per trade 15 times, which, in turn, corresponds to 0,15 lots, and this is our maximum allowable trading volume. In other words, with a $1500 deposit and an acceptable risk of 3% of the deposit, we should open positions of 0,15 lot;
- In other words, we get the following simple formula for calculating risk: Lot size = max. risk (in $) / stop loss (in points) / minimum value of 1 point * minimum trading lot
| Deposit | $1500 |
| Acceptable risk | $45 |
| Stop loss | 30 points |
| Max. lot | 0,15 |
Examples of Risk Calculation
Now we have learned how to calculate risks. But let us reinforce the skills we have gained with a couple more examples.
- So, suppose our deposit is $300, which means our acceptable risk is $9. That is, 3% of $300$;
- Stop loss, let us say, 50 points$;
- We remember how we calculate the lot size: $9, that is, the max. risk, divided by 50, that is, by the stop size, divided by the minimum value of one point, which as we remember is $0,1, and multiplied by the minimum lot, which is equal to 0,01. (9/50/0,1*0,01). As a result, our lot size came to 0,02.
All that remains is to sell, for example, EURUSD. We open a sell order of 0.02 lot and set a stop loss at a distance of 50 points.
| Deposit | $300 |
| Acceptable risk | $9 |
| Stop loss | 50 points |
| Max. lot | 0,02 |
Let us consider one more example, but take an even smaller acceptable risk, say 2,7%.
- Our deposit in this case will be, why not, $8500;
- That means the maximum risk will be $229,5;
- We will arbitrarily take the stop loss as 25 points. We place an order at 1.11128 and add a stop loss;
- We calculate by substituting the values into our formula: 229,5 / 25 / 0,1 * 0,01 = 0,918, which is the lot size for our current risk.
| Deposit | $8500 |
| Acceptable risk | $229,5 |
| Stop loss | 25 points |
| Max. lot | 0,91 |
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 advise rounding the calculated lot size downward. That is, returning to the last example, we remember that the lot size came to 0,918, which means we round it down to 0,91;
- We also advise you to test your strategy on historical data and determine the average stop-loss size, which will save you from having to substitute new values again and again. Having calculated your average stop loss, you will only need to substitute the deposit size and the acceptable risk value into the formula, while the stop loss, the minimum value of one point, and the minimum lot will already be known in advance;
- In addition, it is very important to take the spread into account when determining the stop-loss size. For example, if your stop loss equals 30 points, and the spread = 2, then the calculated stop-loss value will equal 32 points;
- And finally, do not risk beyond the limit you personally set within your trading strategy. Never, even with one hundred percent confidence that you control the situation. By limiting your lack of restraint in the short term, you reap the rewards in the long term!
- Also, if you do not want to calculate risks manually, we recommend that you use a convenient calculator for calculating the trading lot.
Thank you for your attention, and until next time, friends!
Sincerely, Alexey Vergunov
TradeLikeaPro.ru
How to calculate lot size manually: learn the forex risk formula, stop loss sizing, pip value, and deposit risk control for every trade.