How to Determine the Size of Your Position in Various Forex Pairs and Account Currencies

Let's pretend you want to buy EUR/GBP but your broker account is in USD.

You only want to risk $100 in this trade. However, you're not dealing in US dollars; instead, you're dealing in euros and pounds. How do you find out the magnitude of your position？

We'll show you how to calculate your position size if you're trading currency pairings that aren't in your account denomination in this session.

If your account denomination is the same as the conversion pair's counter currency but not the currency pair transacted...

For example, a USD account trading EUR/GBP.

Ned, who we met in the last course, has returned to the United States. He decides to trade EUR/GBP today with a 200-pip stop loss.

To get the proper position size, we must first calculate Ned's risk in British Pounds.

Keep in mind that the value of a currency pair is determined by the counter currency.

Step 1: Calculate the risk in dollars.

Okay, let's get this straightened out. He's back in the market selling EUR/GBP with his US broker, and he just wants to risk 1% of his USD 5,000 account, or USD 50.

The GBP/USD exchange rate is required to determine the appropriate forex position size in this case.

Step 2: Convert the USD risk to GBP.

Let's take 1.7500, and because his money is in US dollars, we'll need to reverse that rate to get the right amount in British pounds.

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

Now we just need to finish the rest in the same manner as the other instances.

3rd step:

Convert the amount of risk in GBP to pips.

In pips, divide by the stop loss:

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

Step 4: Determine the size of the slot.

Finally, multiply by the last calculated unit-to-pip value ratio:

(0.14 GBP per pip) * [(10,000 EUR/GBP units)/(GBP 1 per pip)] = roughly 1,429 EUR/GBP units

To stay under his risk limits, Ned can only sell a total of 1,429 EUR/GBP units.

If the denomination of your account is not in the currency pair transacted, but is the same as the base currency of the conversion pair...

For example, a CHF account trading USD/JPY.

Ned decides to go snowboarding in Switzerland, and in the middle of a couple of double black diamond runs, he sets up a trading account with a local FX broker on his super spy phone.

On USD/JPY, he sees a beautiful setup and has decided to exit the trade if it goes over a key resistance level–roughly 100 pips against him.

Step 1: Calculate the risk in CHF.

Ned will only put up 1% of his CHF 5,000 account, or CHF 50, at risk.

Step 2: Convert the CHF risk to JPY.

To find the value of CHF 50 in Japanese yen, multiply the amount risked by the CHF/JPY exchange rate (85.00), which is easy because the account is the same denomination as the conversion pair's base currency:

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

Now we just need to finish the rest in the same manner as the other instances.

Step 3: Convert the amount of risk in JPY to pips.

In pips, divide by the stop loss:

JPY 4,250 divided by 100 pips equals JPY 42.50 per pip

Step 4: Determine the size of the slot.

Finally, divide the result by a known unit-to-pip value ratio:

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

Shabam! That concludes the discussion.

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