Complex Forex Position Sizing

Complex Forex Position Sizing

In this lesson, we’ll teach you how to calculate for pairs in which your account denomination isn’t one of currencies in the pair currency pair that you wanna trade.

Account Denomination is not in the Currency Pair traded, but the same as the Conversion Pair’s Counter Currency.

Ned is back in the U.S., (we think that he’s actually a super spy just like Forex Ninja, traveling and saving the world in his free time) and today he decides to trade EUR/GBP with a 200 pip stop. To find the correct position size, we need to find the value of Ned’s risk in British Pounds.

Remember, the value of a currency pair is in the counter currency.

Okay let’s straighten things out here. He’s back trading with his U.S. broker selling EUR/GBP and he only wants to risk 1% of his USD 5,000 account, or USD 50.

To find the correct forex position size in this situation, we need the GBP/USD exchange rate. Let’s use 1.7500 and because his account is in USD, we need to invert that exchange rate to find the proper amount in British Pounds.

USD 50 * (GBP 1/USD 1.7500) = GBP 28.57

Now, we just finish the rest the same way as the other examples. Divide by the stop loss in pips:

(GBP 28.57)/(200 pips) = GBP 0.14 per pip

And finally, multiply by the known unit-to-pip value ratio:

(GBP 0.14 per pip) * [(10k units of EUR/GBP)/(GBP 1 per pip)] = approximately 1,429 units of EUR/GBP

Ned can sell no more than 1,429 units of EUR/GBP to stay within his pre-determined risk levels.

Account Denomination is not in the Currency Pair traded, but the same as the Conversion Pair’s Base Currency.

Ned decides to go snowboarding in Switzerland, and in between a couple of double black diamond runs, he opens up his trading account on his super spy phone with a local forex broker. He sees a great setup on USD/JPY, and he has decided that he will get out of the trade if it goes beyond a major resistance level–about 100 pips against him. Ned will only risk the usual 1% of his CHF 5,000 account or CHF 50.

First, we need to find the value of CHF 50 in Japanese yen, and since the account is the same denomination as the conversion pair’s base currency, all we have to do is multiply the amount risked by CHF/JPY exchange rate (85.00):

CHF 50 * (JPY 85.00/ CHF 1) = JPY 4,250

Now, we just finish the rest the same way as the other examples. Divide by the stop loss in pips:

JPY 4,250/100 pips = JPY 42.50 per pip

And finally, multiply by a known unit-to-pip value ratio:

JPY 42.50 per pip * [(100 units of USD/JPY)/(JPY 1 per pip)] = approximately 4,250 units of USD/JPY

Shabam! There you have it!

Ned can trade no more than 4,250 units of USD/JPY to keep his loss at CHF 50 or less.

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  1. Position Sizing
  2. Calculating Position Sizes
  3. Complex Forex Position Sizing
  4. Summary: Position Sizing