How to Calculate Contract Volume When Trading Forex
You already know, why should we avoid magin calls?
This trading volume calculation is based on the amount of capital we have and the amount of risk that we can receive.
Before calculating the trading volume we must pay attention to the capital units we use, whether in the form of Euro (EUR) or Dollar (USD). We need to calculate this because it relates directly to the exchange rate later.
You have capital in a trading account for $ 5,000 and want to trade EUR / USD currency pairs. The amount of risk you can receive is -200 Pips or 1% of your capital.
Based on the amount of available capital in the trading account along with the amount of risk that can be borne, we can calculate the number of trading contracts correctly. That is as follows,
The amount of risk that can be borne is $ 5,000 x 1% = $ 50
Then we divide this risk value in units per pips so that it becomes $ 50/200 pips = $ 0.25 / pips
So when prices move against our estimates we will lose – $ 0.25 for each pips.
Finally, we multiply the value per pip earlier with the unit / pip comparison value of the EUR / USD currency pair which is known to be $ 1 per pip for 10K units (for mini lots).
Volume = $ 0.25 pip x [(10K units EUR / USD) / ($ 1 per pip)] = 2500 units
So you have to open a EUR / USD currency pair trading position of 2500 units.
But in reality you don’t have to bother doing manual calculations as above because in the trading platform everything has been calculated automatically. We only need to enter the number of contracts that we want, then we will see how much the risk value is per pip.
When you already know how much the risk value is per pip (in the example $ 0.25 per pip) that you dare to bear then all you have to do is enter the volume value in the Amount (K) column.
Because the example is using a micro account (mine), the amount is 2.5K to get a risk of $ 0.25 per pip.
Remember, yeah! above is an example of a Micro account not Mini !!!! because my account is still Micro yet Mini or Standard 🙂
I personally usually only set the risk of not more than $ 0.1 per pip because the instrument I traded is very volatile so that I was able to withstand the fluctuation of price movements between 200 pips to 500 pips or around $ 20 to $ 50.