How to compute margin forex

How to Calculate Leverage, Margin, and Pip Values in Forex.

Although most trading platforms calculate profits and losses, used margin and useable margin, and account totals, it helps to understand how these things are calculated so that you can plan transactions and can determine what your potential profit or loss could be.

Leverage and Margin.

Most forex brokers allow a very high leverage ratio, or, to put it differently, have very low margin requirements. This is why profits and losses can be so great in forex trading even though the actual prices of the currencies themselves do not change all that much—certainly not like stocks. Stocks can double or triple in price, or fall to zero; currency never does. Because currency prices do not vary substantially, much lower margin requirements is less risky than it would be for stocks.

Before 2010, most brokers allowed substantial leverage ratios, sometimes up to 400:1, where a $100 deposit would allow a trader to trade up to $40,000 worth of currency. Such leverage ratios are still sometimes advertised by offshore brokers. However, in 2010, US regulations limited the ratio to 100:1. Since then, the allowed ratio for US customers has been reduced even further, to 50:1, even if the broker is located in another country, so a trader with a $100 deposit can only trade up to $5000 worth of currencies. In other words, the minimum margin requirement is set at 2%. The purpose of restricting the leverage ratio is to limit the risk.

The margin in a forex account is often referred to as a performance bond , because it is not borrowed money but only the amount of equity needed to ensure that you can cover your losses. In most forex transactions, nothing is actually being bought or sold, only the agreements to buy or sell are exchanged, so borrowing is unnecessary. Thus, no interest is charged for using leverage. So if you buy $100,000 worth of currency, you are not depositing $2,000 and borrowing $98,000 for the purchase. The $2,000 is to cover your losses. Thus, buying or selling currency is like buying or selling futures rather than stocks.

The margin requirement can be met not only with money, but also with profitable open positions. The equity in your account is the total amount of cash and the amount of unrealized profits in your open positions minus the losses in your open positions.

Total Equity = Cash + Open Position Profits - Open Position Losses.

Your total equity determines how much margin you have left, and if you have open positions, total equity will vary continuously as market prices change. Thus, it is never wise to use 100% of your margin for trades—otherwise, you may be subject to a margin call . In most cases, however, the broker will simply close out your largest money-losing positions until the required margin has been restored.

The leverage ratio is based on the notional value of the contract, using the value of the base currency, which is usually the domestic currency. For US traders, the base currency is USD . Often, only the leverage is quoted, since the denominator of the leverage ratio is always 1. The amount of leverage that the broker allows determines the amount of margin that you must maintain. Leverage is inversely proportional to margin, which can be summarized by the following 2 formulas:

Leverage = 1/Margin = 100/Margin Percentage.

To calculate the amount of margin used, multiply the size of the trade by the margin percentage. Subtracting the margin used for all trades from the remaining equity in your account yields the amount of margin that you have left.

To calculate the margin for a given trade:

Margin Requirement = Current Price × Units Traded × Margin.

Example—Calculating Margin Requirements for a Trade and the Remaining Account Equity.

You want to buy 100,000 Euros (EUR ) with a current price of 1.35 USD, and your broker requires a 2% margin.

Required Margin = 100,000 × 1.35 × 0.02 = $2,700.00 USD.

Before this purchase, you had $3,000 in your account. How many more Euros could you buy?

Remaining Equity = $3,000 - $2,700 = $300.

Since your leverage is 50 , you can buy an additional $15,000 ( $300 × 50 ) worth of Euros:

15,000 / 1.35 ≈ 11,111 EUR.

To verify, note that if you had used all of your margin in your initial purchase, then, since $3,000 gives you $150,000 of buying power:

Total Euros Purchased with $150,000 USD = 150,000 / 1.35 ≈ 111,111 EUR.

Pip Values.

Because the quote currency of a currency pair is the quoted price (hence, the name), the value of the pip is in the quote currency. So, for instance, for EUR/USD, the pip is equal to 0.0001 USD, but for USD/EUR, the pip is equal to 0.0001 Euro. If the conversion rate for Euros to dollars is 1.35, then a Euro pip = 0.000135 dollars.

Converting Profits and Losses in Pips to Native Currency.

To calculate your profits and losses in pips to your native currency, you must convert the pip value to your native currency.

When you close a trade, the profit or loss is initially expressed in the pip value of the quote currency. To determine the total profit or loss, you must multiply the pip difference between the open price and closing price by the number of units of currency traded. This yields the total pip difference between the opening and closing transaction.

If the pip value is in your native currency, then no further calculations are needed to find your profit or loss, but if the pip value is not in your native currency, then it must be converted. There are several ways to convert your profit or loss from the quote currency to your native currency. If you have a currency quote where your native currency is the base currency, then you divide the pip value by the exchange rate; if the other currency is the base currency, then you multiply the pip value by the exchange rate.

Example—Converting CAD Pip Values to USD.

You buy 100,000 Canadian dollars with USD, with the conversion rate at USD/CAD = 1.1000 . Subsequently, you sell your Canadian dollars when the conversion rate reaches 1.1200 , yielding a profit of 1.1200 - 1.1000 = 200 pips in Canadian dollars. Because USD is the base currency, you can get your profit in USD by dividing the Canadian value by the exit price of 1.12 .

100,000 CAD × 200 pips = 20,000,000 pips total. Since 20,000,000 pips = 2,000 Canadian dollars , your profit in USD is 2,000 / 1.12 = 1,785.71 USD .

However, if you have a quote for CAD/USD , which is equal to 1/ 1.12 = 0.892857143 , then your profit is calculated thus: 2000 × 0.892857143 = 1,785.71 USD , which is the same result obtained above.

For a cross currency pair not involving USD, the pip value must be converted by the rate that was applicable at the time of the closing transaction. To find that rate, you would look at the quote for the USD/pip currency pair, then multiply the pip value by this rate, or if you only have the quote for the pip currency/USD, then you divide by the rate.

Example—Calculating Profits for a Cross Currency Pair.

You buy 100,000 units of EUR/JPY = 164.09 and sell when EUR/JPY = 164.10 , and USD/JPY = 121.35 .

Profit in JPY pips = 164.10 – 164.09 = .01 yen = 1 pip (Remember the yen exception: 1 JPY pip = .01 yen .)

Total Profit in JPY pips = 1 × 100,000 = 100,000 pips .

Total Profit in Yen = 100,000 pips / 100 = 1,000 Yen.

Because you only have the quote for USD/JPY = 121.35 , to get profit in USD, you divide by the quote currency's conversion rate:

Total Profit in USD = 1,000 / 121.35 = 8.24 USD.

If you only have this quote, JPY/USD = 0.00824 , which is equivalent to the above value, you use the following formula to convert pips in yen to domestic currency:

Forex Calculators – Position Size, Pip Value, Margin, Swap and Profit Calculator.

The secret to good Forex trading is to use sound judgement and analysis of the currencies you wish to trade on and prepare yourself in case your chosen trade loses.

This article will teach you basics of prolonging your trading capabilities.

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Managing Risks.

When it comes to trading, there is one major difference between a beginner and a professional trader:

A new trader concentrates on how much money he can make.

But an experienced one focuses on how much money he can lose.

Now think of that for a moment.

It may seem like the new trader is optimistic and the professional is a pessimist, but that is not the case.

One of the traits traders acquire over time is learning how to lose gracefully.

The truth behind investing is that stumbling across losing trades is inevitable.

No trader is correct 100% of the time.

Even if he is 100% correct in choosing the trade setups, the market can sometimes behave against what was expected.

However, properly managing your risks is vital for long-term success.

Loss is a part of investing/trading and thus, you must prepare yourself for the worst.

Risk management is all about knowing and limiting the risks in forex trading.

There’s always the likelihood that the forex market can move against you, increasing your losses over time.

Hence, you’ll want to use a protective stop loss: a strategy that allows you to protect your gains or prevent additional losses.

Such a technique activates at a given price level that assures a trader that he will make a predetermined profit or loss.

So, before you enter a trade, you should make an exit plan.

However, if the market continues to move against, some novices will insist on holding on to a trade, desperately hoping that it will go back up for the sake of recouping their losses.

In a worst case scenario, the market continues to go against them consistently and never rebounds.

As their emotions ensue, they now have taken bigger losses than they can cope with.

Now, trading for them has become a total nightmare or what is termed as a margin call.

Through lack of planning and emotional takeovers, you are putting yourself at high risk.

When you have real money on the line, you’ll tend to make decisions based on greed or fear.

Instead, you should make choices based on sound analysis rather than the need to get out of a trade.

On the other hand, traders have exited trades they thought have bottomed out, only to find the market moves back up.

Anyway, those who decide not to let this happen to them again become better traders.

Hence, there are three great strategies that you must apply again and again and again:

Determine your entry Identify your risk Protect your potential profit.

Managing Your Trade.

We can look at risk through probability.

Apparently, when we toss a coin and choose heads or tails, there is a 50% chance that we’ll be correct.

Assume that we’ll win a dollar every time we’re right and lose a dollar every time we’re wrong.

We then are break-even traders.

To be profitable, one of two things must happen:

We need to win a higher percentage of coin tosses (or trades). We need to profit more each time we’re right than we lose when we’re wrong.

Any successful trader knows that there is no one trade that is guaranteed to be a winner.

Therefore, they don’t let the outcome of a trade affect them personally.

They know that from a series of trades, they’re bound to find one that will earn them a profit.

So, if they found a profitable trade in the past, they know they’ll find one again.

The pros treat trading as a business rather than a form of entertainment.

They have two goals in mind:

Think About Winning Half the Trades:

While some novice traders get lucky and win three out of four trades, sometimes they lose more pips on the fourth trade than they won on the first three combined.

Use the Classic 1:3 Risk/Reward Ratio:

This means to win $3 every time you’re right and lose $1 each time you’re wrong.

Likewise, adjusting your protective stops according to forex market movement can increase your chances of being right over being wrong.

I say 1:3 risk/reward, because it is an acceptable start for novice traders.

Pros don’t think about less than 1:5 while they maximize their profit with some of the positions, sometimes up to 1:15.

Managing Your Account.

When measuring risk, we must be familiar with one vital term: PIP.

PIP is an acronym for percentage in point meaning the smallest price change that a given exchange rate can make.

As currencies are quoted, they are quoted to the full decimal place.

For instance, take the following quote: EUR/USD 1.2391.

The ‘1’ is the last digit to the right and thus the smallest amount the rate can increase or decrease by and hence is called the pip.

The very first question that comes to mind may be:

How many lots should we open?

This all depends on the total risk ratio you’re willing to take.

Let’s say you had the following:

– Account balance: $5,000.

– Trade size: 250,000 EUR/USD (2.5 lots)

– PIP cost: $25 per pip.

Pip Value Calculator.

Use our pip value calculator below.

Now let’s assume that you prepare for a 100 pip loss on this trade.

This comes out to be a total loss of $2,500 ($25 x 100 pips).

In this case scenario, the loss potential is $2,500 or 50% of our total account balance.

Now it just doesn’t make much sense to take out as much as 2.5 lots on this trade since a 50% loss is rather steep.

With a risk ratio this high, we can run out of money before winning another trade.

Therefore, we want to risk a limited number of pips and a limited amount of our account balance so we can continue to trading even after a few losses.

Thus, it is advisable not to risk any greater than 2% of our account balance on any one trade at any one time.

To get a better feel for calculating our trade size, we can carry out some simple calculations:

$5,000 x 2% = $100 maximum loss.

What will we need to do?

1. Determine the stop distance on our trade.

2. Determine the pip cost of your trade.

So let’s say that the pip cost per lot is $10.10.

For 100 pips x $10.10 = $1,010.

Now if we purchased 2 lots, our pip cost would double: 100 pips x $20.20 = $2,020.

How about 3 lots?

That of course would come out to be a loss potential of $3,030: 100 pips x $30.30 = $3,030.

In the previous calculation, we figured our maximum loss to be $100 and apparently taking one lot exceeds this.

So in this scenario, it would be best to buy 0.1 lots.

Basic Trading Money Management.

Basic trading money management requires:

Being prepared to take on a loss and managing risk appropriately Using protective stops whenever possible and adjusting them according to how the market is moving (up or down) Not allowing your emotions to take over, especially if the market tanks.

It is best to limit your risk to 2% for each position, so you don’t lose a great deal of funds that can be applied on additional trades.

Remember, patience and consistency are key virtues.

One good trading opportunity now can lead to more in the future.

To have more winning trades, you have to learn and master a good and strong trading system, that not only help you locate the best trading opportunities, but also shows you the best possible place to set the stop loss orders to limit your risks.

Here is also some of the articles that help you in your money management plan.

Position Size Calculator:

As a forex trader, sometimes you have to make some calculations.

One of the most important thing that you have to calculate is the position size.

To follow the money management rules, you have to know how much risk you are taking in each position.

To do that, you should be able to calculate your position size based on your account balance and the trade stop loss size.

The below calculator makes the work much easier and faster.

Please also read my money management article to learn more about this important topic:

Pip Value Calculator:

Use the below calculator to know how much money each pip makes for you while trading different currency pairs:

Margin Calculator:

Use the below calculator to know how much margin is required for each position:

Swap, Rollover or Interest Calculator:

Use the below calculator to know how much swap you have to pay or you will receive for trading different currency pairs:

Profit Calculator:

Use the below calculator to know how much money you will make trading different currency pair:

Position Size Calculator Script for MT4 Platform.

Calculating the position size based on the percentage of the risk you want to take and the stop loss size of the trade setup you locate is a pain, specially when you are in rush to enter the market before it becomes too late.

You can use a position size calculator, but a calculator that does the job for you right on the trading platform is a much better option.

Before sharing such a calculator, please let me explain a little about position size calculation.

Why should you calculate your position size before entering the market?

Let’s say you have located a trade setup based on your trading system.

That special trade setup needs a 100 pips stop loss.

You have a $10,000 account and you want to risk only 2% of your account which is $200.

It means if the price hits the stop loss, you should not lose more than $200.

Now the question is how big your position size has to be?

If you take a one lot EUR/USD position with a 100 pips stop loss, then if it hits the stop loss you will lose $1000 because EUR/USD pip value is about $10, and so 100 pips means $1000.

Therefore, if you want not to lose more than $200, then you have to take a 0.2 lots position which is 5 times smaller than one lot.

This is how you have to calculate your position size.

Different Currency Pairs.

The problem is, different currency pairs have different pip values.

And to use a position size calculator, you have to enter the currency pair ask price.

Besides, it takes time and you can make mistakes when you are in rush to take your positions as soon as possible.

And usually you forget how to calculate when you are in rush.

So, an automatic tool that does all of this right on the trading platform is really helpful.

A tool that calculates the pip value of each currency pair in the background and gives you the result.

One of the LuckScout users, Dionisis, sent us a script that calculates the position size based on the stop loss value and risk percentage.

It also gives you the target value if you tell it how big you want your target to be.

Thank you Dionisis 🙂

This is how you can use the script according to Dionisis:

This script works only with the MT4 platform.

How to Install:

Click Here to download the script. Go to File->Open Data Folder->MQL4->Scripts Copy/Paste the script Restart MT4.

The script can be accessed in the navigator window, under the “Scripts” list.

How to use:

1. Draw a horizontal line at the desired Stop Loss level:

2. Attach the script at the same chart.

3. The following pop-up window should appear (make sure the “Inputs” tab is selected):

4. In the “Stop_Loss_Price” cell insert the price shown by the red horizontal line drawn in the chart.

5. In the “risk’’ cell insert the amount of risk to be taken for this trade, as a percentage of account’s balance.

6. In the “Target’’ cell insert the target of the trade expressed as Stop Loss multiples. For example, for Take Profit=3xStop Loss insert 3.

For the given example the table should look like this:

7. Press “OK”. The following message will appear:

The position size shall be 0.0387 (round this based on your broker’s settings) and the Take Profit price shall be 0.8922.

The Stop Loss price is shown in the chart by the horizontal line. In terms of pips, it is given by the script’s output message (97 pips).

This is just a script, it will not take or modify any positions. The script will identify if it is going to be a short or a long position. In the former case it will include the spread pips in the stop loss calculation. This script works for all account currencies and for 5 or 4 (2 or 3 for JPY pairs) price decimal digits.

The issue with gold is fixed. Two more features are added:

1. The output window now also shows the currency’s spread (in points).

2. An optional input (‘Enter_Price’) in case one wants to calculate the size for a pending order. If it is left to 0 (default value) the size will be calculated based on the current bid price.

How Do You Rate This Position Size Calculator Script?

It is great. It helps. It is useless.

+ Click Here to learn who we are and why this site was created.

Love your Lot Size Calculator ! Keep up the good work.

please give us the similar calculator for equities, futures and options, if possible.

thank you for these calculators. I have introduced myself to world just 2 months ago and I am hooked. I have heard about people blowing up their accounts so I am keeping a strong tab on risk management even on my demo account.

So if I start with a $1000 account balance, for risk tolerance of 2%, and SL=100 pips, I can only open a position of 0.02 LOT ( or 2000 units or 2 micro lots). Thats a very SMALL position to open.

I also reverse calculated and found that to open a position of 1 LOT size, ( with same 2% risk and SL=100 pips), we must have an account balance of $50,000!!

So there is no way I should open a position of anywhere near 1 LOT with a $1000 account if I want to perform proper risk management. So novice traders will be trading very small lot sizes until their account has grown substantially.

For 1 LOT size, 50 pips profit = $500 🙂

for 0.01 LOT size, 50 pips profit = $5 🙁

But I guess only slow and steady wins the race.

Chris, these calculators are invaluable as I see it. Thank you very much for providing them. One concern/puzzlement: The Pip Value Calculator pairs selection appears to be somewhat limited, that is, I do not see the CAD/JPY pair in the drop down. Could this be a problem with my browser or is it the calculator? Your input please.

Kind regards, and thank you!

You are welcome.

It should be the calculator problem because it has not been updated for such a long time. We will have to fix it.

Hi Chris, would you be able to add gold to the position size calculator?

The Position Size Calculator and the Pip Value Calculator are tremendous trading tools. I think you are the only website that offers calculators of this quality and that have such ease of use. You have made is very easy to create a successful Money Management system! Thanks a lot! BobH.

just wanted to say you have a awesome site all the tools any investor needs and i love reading all the articles great job.

Chris this is just amazing… what inspires to do this great website? i mean all of this is for free and the quality you provide here is excellent.. please keep this uo forever..i have learned a lot… i really love have not opened a live account ye but i am enjoying myself in the demo account using metatrader…

hi..how much profit can i have if i trade with a leverage of 200:1 , a sum of 100 us dollars , with a move of 3 pips.

The amount of the money you make/lose has nothing to do with leverage. It depends on the position size you take. One lot EUR/USD makes/loses about $10 for each pip.

Could you please explain how margine is calculated when USD is the base currency. (USD\JPY) Assume leverage is 200:1.

It is explained here:

Thanks. I have a sell position USD\JPY 1000 units (200:1) and the ‘Used Mr’ is $14. I’m not sure how this figure is calculated in a short position. When you go short, you actually borrow units and sell assuming you can buy it when prices are low. So margin used should be $5 according to calculator. Am I correct? Please help. Thanks.

could you please provide the formula used by each tool…with a explanation of variables.

Chris, good day to you and I will always thank you for this services you are providing for free to so many people here. I was using the pip value calculator and comparing its results to what I have been having on my live trade account and they are not matching. The pip value from the trade account appears to be 10 times less than what the pip value calculator is giving. For instance, the pip calculator gives $10 value per pip if trading 1 LOT EUR/USD, but the real live account gives $1 value to a pip. Could this be a little error from the calculator?

Thanks Chris and remain blessed.

I don’t think this is related to calculator. A $10 value for one lot EUR/USD makes sense. What you see on your platform doesn’t make sense. Could you please share a screenshot of the platform terminal when you have a one lot open position?

You can upload the picture to tinypic and share the URL here.

I get confused with leverage and lot size although I have studies the leverage website and money management website for few time.

1. The amount money I paid for buying with leverage, 10:1 with lot size, 1 lot compare to buying with leverage 1:1, with lot size, 0.1 lot is the same?

2. What is the loses between 2 scanario above when come to profit/loss?

Could you help to explain that. Thanks so much.

2. Profit/loss is the same and it has nothing to do with leverage.

Hey Chris, your blog is the best. I’ve been demo trading for more than 3 months now, with good results. Now I want to start live trading, but I can’t afford investing a huge capital. Do you think is it possibile to begin with 100 bucks?

Your answer is here:

Hi Chris, thank for answering me. I was thinking to open an account with a market maker, earn 1000 or 2000 bucks, and then open a ECN account. I know market makers are not very honest, but I believe they don’t make too much problems as long as you don’t earn load of many. Do you think is it a bad idea?

Yes, that makes sense. I hope the let you grow your $1000 account without any problems.

Thanks Chris. I hope it too. Is 1000 bucks enough to open an ECN account? I’ve heard some ECN brokers asking 5000 or 10000 bucks as minumum account size.

$3000 is safer. You can grow your $1000 to $5000. It is not that hard.

Wouuld you mind sharing the formula to calculate profit here? I have found one but the result was different than your profit calculator. I would like to memorize it so I don’t have to go to this page whenever I calculate it. Thank you!

It is very easy. You just calculate the pip value and multiply it to the number of pips you have made. For example, if you have made 100 pips while pip value is $10, then your profit is $1000.

hi chris can you tell me please how to know the number of units each currency pairs.

one lot is 100,000 units for all pairs.

If i enter USD as account currency and want to trade in NZD/CHF then why position size calculator ask for current USD/CHF ask price…it should ask for enter NZD/CHF ask price…Please clear.

Your position size calculator is correct. It has to know the USD/CHF rate to calculate the NZD/CHF pip value and positions size , because the base currency of this market is USD.

Thank you Chris sir.

You surely make our life easier.

Thank you for guiding us with different strategies of trading.

It would be of great help if you add all the pairs in the profit calculator tool.

Speaking about lot sizes, 9.00 and 10.00, they mean respectely 900 thousand bucks and one million, am I right? People who trade 1 million at time, they don’t need to take more than one position at time, am I right?

> Speaking about lot sizes, 9.00 and 10.00, they mean respectely 900 thousand bucks and one million, am I right?

> People who trade 1 million at time, they don’t need to take more than one position at time, am I right?

They can take as many positions as they want if their account size allows them to.

Hi i have an a demo account through mt4 and two accounts one for me and one for my brother. His is is through metaquotes and mine is through mb trading. We both placed an order with eru/jpy and noticed that the candle pattern with ddb system are different. Is this normal and if so what could cause this discrepancy. Thanks.

As I see, every week there is an extra candlestick on the first chart. That extra candlestick is related to Sunday afternoon and it is because of the daily candlestick close time which is not properly set on the first platform. So, you’d better to use the second platform.

Thanks I was thinking the broker was manipulating the price some how, im pretty sure mbtrading is one of the rare ecn brokers that take us citizen but im still doing home work on it as i demo trade.

Can you link both the “Position Lot Size” and “Margin Calculator” can you also add margin call percentage of the broker we used on the margin calculator so we know immediately if we’re within safety range to avoid margin call, also linking both position lot size & margin calculator will allow us to play on the numbers we input if we need to add or lessen the numbers to avoid margin call, to widen our SL or maximize the position lot size to gain more profit. Hope you understand what I mean here and appreciate your kindness and may God Bless You and Your Team. Having an EA like this will be very helpful to us.

Yes, I understand what you mean. I am going to add this to our programmers to-do-list.

Thank you for this amazing tool.

Can you add the option of entering the stop-loss value to the calculator so that we can have an exact value of our stop loss?

I mean there would be an extra option besides the stop-loss in pips.

With “Position Size Calculator” you have to enter the stop loss pipage based on the trade setup you have located. Therefore, you should already know where you will place the stop loss. Am I right?

Yes you are completely right.

I just want to have all the data available in the calculator otherwise there is no problem with it.

The calculator tells me my position size should be 0.888. What it mean? 0.08 lot?

It means 0.89 or 0.9 lot.

Thank you, Cris. But how can 0.888 mean 0.9 lot? It’s pretty complicated to understand? What’s the logic behind it? Is there an easier calculator to know the size of the posiion I need to take?

You just round the number.

When it is 0.88, you omit the second 8 and add one unit to the first one and it becomes 0.9.

However, when it is 0.84, you just omit 4 and you will have 0.8.

When the second decimal is 5 or greater, you add one unit to the first decimal. When the second decimal is below 5, you just omit it.

Thank you very much, Chris. You’re always a great teacher.

Thank you Chris for your calculators.

Is it at all possible for you to graciously add the EUR/NZD currency pair to the profit calculator?

I will ask the programmers to do it.

How r u first of all?

I have found another question in my mind that I need to ask u. I have calculated the position size of a currency pair using ur position size calculator given on ur website & the calculator used in MT4 meta trader. But now I am confused that why there is shown the different position size of one currency pair. pls solve it.

Here is also the link of screen shot of both items.

I don’t know why the result is different. I don’t know MT4 calculated the lot size. Maybe that is more accurate than our calculator.

Do you prefer using Website calculator to MT4 calculator?

MT4 calculator should be more accurate.

Hi Chris, Just a quick question, I don’t really know if this is correct but what if the stop loss pip amount is 800 pips and your account size is $1000 USD demo. Using micro lots I would risk $80 which is 8% of my account. What do I do in this situation? Am I wrong? can you refer to an article?

When micro lot is 0.01 lot, then 800 pips equals about $8.

sorry I meant 8000 pips, I’ll give you an example the EURAUD monthly 2015.10.01 monthly candlestick formed could form a 100 gauge setup but the stop loss must be 7000 pips. When I use your calculator for 2% risk, its just not possible. sorry my english is not good.

You have to omit the last digit. So it is 800 pips, not 8000.

Is there something wrong with Position Size Calculator for NZD/USD?

I calculated 2% loss for 70pips but I lost 4% instead.

For my understanding, please kindly correcting me. ===>

If I trade with the Mini Account , 1:100 leverage.

My account fund = 1,000$

Risk 2% of fund = 20$

S/L distance = 50 pips.

Position Sizing = 20$/50 pips = 0.4 lot ……… correct ?

or 0.04 lot ? and why ?

Thank you in advance,

Again congrats and thank you so much for your hard work!

Quoting San in this very same article:

“So if I start with a $1000 account balance, for risk tolerance of 2%, and SL=100 pips, I can only open a position of 0.02 LOT ( or 2000 units or 2 micro lots). That’s a very SMALL position to open.”

If the previous scenario was bound to a daily chart, should we stick with this time frame and grind through?

Or may that work as a signal that we may be over our heads regarding to risk/SL management and would be a wise strategy to drop a notch to 4H time frame?

Thank you too Daniel.

If your account can’t handle a big stop loss, then the solution is not referring to the shorter time-frames and increase your risks. You will lose your money easier there.

How to Calculate FOREX Margin.

Foreign exchange, or forex, is one of the largest traded commodities in the world. This is primarily because any nation that issues currency can feasibly trade in the forex market. It is also due to forex margin. Unlike margin for stock accounts, due to the liquidity of the forex market, brokers give forex traders much higher margin limits. For instance, it is not unusual for a broker to provide a trader with margin of 200 to 1. This means that for every $1 invested in the market, the broker will give you buying power of $200.

Determine the total transaction (notional) value. Let's say you wish to trade one "lot." A lot is 100,000 units in any currency. For instance, the quote 100,000 EUR (euro) / USD (U. S. dollar) is equivalent to 100,000 euros.

Determine the margin requirement. This is the amount of money you are required to put up in order to make a trade, and is referred to as "margin requirement" by the forex broker. Let's say your broker requires 1 percent of the transaction amount before you can trade.

Determine the Forex margin. Multiply the margin requirement by the transaction value. The calculation is 100,000 x 0.01 = $1,000.

Calculate margin-based leverage. Divide total value of the transaction (notional) by the forex margin. The calculation is: 100,000 / 1,000 = 100:1 or 100 to 1.

Margin-based leverage is usually expressed as a ratio. The most common ratios are noted below:

400:1 or 0.25% 200:1 or 0.50% 100:1 or 1.00% 50:1 or 2.00%

When you buy on margin, you're at risk not just for the funds you put up, but for the entire amount of the purchase. In the example above, if you put up $1,000 to purchase a lot of $100,000 worth of Euros, and those Euros drop in value to $90,000, you lose the entire $10,000 drop in value, not just your $1,000. Some currencies are more volatile and significant short-term changes in value are not uncommon. When dealing in forex, you should understand all the related issues thoroughly and work with a trusted professional.

References.

About the Author.

Working as a full-time freelance writer/editor for the past two years, Bradley James Bryant has over 1500 publications on eHow, LIVESTRONG and other sites. She has worked for JPMorganChase, SunTrust Investment Bank, Intel Corporation and Harvard University. Bryant has a Master of Business Administration with a concentration in finance from Florida A&M University.

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How does margin trading in the forex market work?

When an investor uses a margin account, he or she is essentially borrowing to increase the possible return on investment. Most often, investors use margin accounts when they want to invest in equities by using the leverage of borrowed money to control a larger position than the amount they'd otherwise by able to control with their own invested capital. These margin accounts are operated by the investor's broker and are settled daily in cash. But margin accounts are not limited to equities - they are also used by currency traders in the forex market.

Investors interested in trading in the forex markets must first sign up with either a regular broker or an online forex discount broker. Once an investor finds a proper broker, a margin account must be set up. A forex margin account is very similar to an equities margin account - the investor is taking a short-term loan from the broker. The loan is equal to the amount of leverage the investor is taking on.

Before the investor can place a trade, he or she must first deposit money into the margin account. The amount that needs to be deposited depends on the margin percentage that is agreed upon between the investor and the broker. For accounts that will be trading in 100,000 currency units or more, the margin percentage is usually either 1% or 2%. So, for an investor who wants to trade $100,000, a 1% margin would mean that $1,000 needs to be deposited into the account. The remaining 99% is provided by the broker. No interest is paid directly on this borrowed amount, but if the investor does not close his or her position before the delivery date, it will have to be rolled over, and interest may be charged depending on the investor's position (long or short) and the short-term interest rates of the underlying currencies.

In a margin account, the broker uses the $1,000 as security. If the investor's position worsens and his or her losses approach $1,000, the broker may initiate a margin call. When this occurs, the broker will usually instruct the investor to either deposit more money into the account or to close out the position to limit the risk to both parties.