# Position sizing on Forex trading

After you have determined you risk and your reward the next thing is your position size. Position sizing comes in when you want to place you trade. Position sizing is the glue that holds risk to reward ratio together. It helps you to know how many lot size will I place for this trade with this particular risk.

For instance, if I am risking \$30 in a trade, and the stop-loss is 100pips that means the trade will have to go against me 100 pips before I lose \$30. Then on my broker’s platform I will need to calculate a lot size that will give me a pip value that will amount to \$30 for 100pips. Depending on the type of account you open micro or standard account. Open a demo account and open trades in each lot size starting with 0.01lot to know the equivalent in pip for each currency you want to trade. One standard lot size is \$10 per pip value. For some currency it may not be \$10 may be \$9.98 or less than that. You can use this formula (Divide your Risk Amount by your Stop Loss)

Now assuming you were able to calculate that 0.01lot size will gives you \$0.1 pip value, 0.02 lot size will give you \$0.2 pip value etc. Once you discover this, then with 100 stop loss, every 100pips will give you \$10. To lose \$30, then the appropriate lot size to trade will be 0.03. This means a pip value will be equivalent to \$0.3 (\$30/100pips) and this trade will have to move against you for about 100pips before you lose \$30 from that trade.

Your risk will determine the position size to use. It is not your stop loss. Most traders mess up in position sizing by fitting their stop loss to their desired position size instead of fitting their position size to their desired stop loss. For instance, if I am trading Gold and the set up gives requires a stop loss of 150pips, and my risk is \$30. My Calculated reward is \$60. The Lot size to take will be 0.02 lot size. For every \$0.2 pip move, 150pips move will be equivalent to \$30.

To illustrate the example of adjusting your position size to fit the necessary stop loss let’s look
at a daily chart of AUDNZD currency pair below.

Risk-Reward Ratio