Carrying on from our last post (position sizing strategies), we will now answer the other commonly asked question, "How do I calculate my pip size when trading Forex?". Unlike position sizing, calculating pip size is not as straight-forward - you may need the help of a calculator!
How to calculate Forex pip size
To make the process a bit easier, we have broken the pip size process into step-by-step calculations and have also included a video...
Step 1
Calculate how much you wish to risk per trade (0.5% of account etc.) and then calculate the monetary value i.e I am going to risk 1% of my $2,000 account so I will be risking $20 per trade (2000*0.01).
Step 2
Each time you plan on entering a trade, you will need to adjust your lot/unit size according to the pip size of your stop loss. Let's say that you are going to enter a trade with a 10 pip stop loss. You will need to divide your risk amount ($20) by the stop loss pip size (10). This will give you the price per pip that you need to risk. In this example, it would be $20 / 10 pips = $2 per pip.
Step 3
If you are using a spread betting provider, you can enter $2 per point. Fini.
If you are trading with lot or unit sizes, you will need the help of a pip size calculator...
Step 4
The pip size calculator will let you know the price per point for any amount of lots or units. Use the calculator to find the lot/unit amount that tallies with your price per pip amount ($2). In this example, if the trade was on the EURUSD, you would need to enter 0.2 lots/20,000 units as your trade size (as at 06/03/2017).
Use our Forex pip calculator.
Step 5
Confused? Try the video below..