# Professional Currency Trading: Position Sizing

Position sizing is another must know concept to FX professionals and includes

1. Risk Size 2. Value Per Pip, 3. Stop Placement  4. Value of Pip moves. 5. # lots.

Risk Size. Question is what is the risk of an account or better stated how many pips to trade.  Answer: Currency denomination X 0.01 = 1% of account. The basics:

USD \$5,000 X 0.01 = 50 pips to trade  at 1%. \$5,000 X 2% or 0.02 = 100 pips to trade. \$5,000 X 0.03 = 150 pips to trade. \$5,000 X 0.04 or 4% = 200 pips to trade. Suppose 10%. \$5,000 X 0.10 or 10% = 500 pips to trade. 20%, \$5,000 X 0.20 = 1000 pips to trade.

Note percentages. Its the secret to currency trading profits. How much will a \$5,000 account grow at 1% and 50 traded pips and how many overall trades. For beginner’s, its perfect. For skilled, not good. I’m deviating a bit from the overall theme of this post to add advice.

2. Value Per Pip.  USD 1% at 50 pips for a 200 pip trade = 0.25 by 50 Divide 200. USD 1% at 50 pips for 150 pip trade = 0.33, 50 divide by 150. 50 divide 100 pip trade = 0.50. USD 1% at 50 pips for 20 pip trade = 2.5

USD 2% at 100 pips for 250 pip trade = 0.40. USD 2% at 100 pips for 200 pip trade = 0.50. USD 2% at 100 pips for 150 pip trade = 0.66. 100 Divide 100 = 1.0.  USD 2% at 100 pips for 50 pip trade = 2.0.

Pip Moves. For EUR/USD 1 divide by 10,000 = 0.0001. Every currency pair has a different pip value. EUR/USD is always offered in examples because its easy. What 0.0001 equates to is 1 pip or 10,000 x 0.0001.  USD/JPY I believe trades at pip values at 0.88 so 1 divide by 100 = 0.01.

Lot Sizes. Per Pip X 10,000 then divide by 1. Assume \$5,000 at 1% = 50 pips. A 200 pip trade = 50 divide 200 = 0.25. Lot size = 0.25 X 10,000 divide by USD 1 = 2.5 lots.

Stop Placement. The risk is 50 pips therefore stop is placed at 50 pips or 50 pips from entry.  An imperative is know entry and exit before the trade.

I will expand on the above rules and principles in next post to offer advice and more examples. Also, stops and stop placement will post.

Brian Twomey, Inside the Currency Market, btwomey.com,