How to calculate your risk

Always use the stop-loss on each trade

As forex traders we never think about placing, entering in the trade without knowing where to place our Stop-Loss order, which protects us from bigger risk in case the market wants to go against us.

You must plan your trading for the next years. Trading is a business. It is a marathon, not a sprint! Read below to learn how to calculate your risk as a forex trader.

Successful traders are only those who successfully manage their trading risk exposure.

On the first place, a forex trader wants to protect his money and then make profits. Managing the risk is in my opinion one of the key factors for growing your trading account.

Before you start thinking about how much money can you make trading forex market, make sure you first take care of the risk. In our opinion, the Money Management makes a trading less stressful and it is also a difference between success and failure. That is why calculating the risk on every trade is a crucial. We are using this Myfxbook calculator. It is very simple to use.

Example on how to calculate forex position size and risk

1st step: Based on your trading edge rules, determine first how much you will risk in terms of pips. In MetaTrader 4 trading platform, you can use “Pip Meter” tool to measure the distance from your approx. Entry and Stop-Loss level in terms of “Pips”.

NOTE: To use the “Pip Meter” tool, click the scrolling button on your PC mouse, hold and drag it on your chart.

Lets assume you are looking to buy EUR/USD, and set your Stop-Loss level 70 pips away from your entry.

2nd step: Use this Myfxbook calculator and choose/write down your:

• Account Currency
• Account Size
• Risk Ratio in %
• Stop-Loss in pips
• Currency Pair

To continue from our 1st step above, we can give you an example.

• Account Currency: USD
• Account Size: 10.000
• Risk Ratio in %: 2
• Stop-Loss in pips: 70 (from Step 1)
• Currency Pair: EUR/USD

 

After you clicked the button “Calculate”, you get your Forex Position Size and Risk. Based on our example above, traders risk would be 200$ per trade, and he/she can enter with no more than 0.286 lots (28571 units of currency pair).

That is it, simple as that!

As traders we can´t control the randomness of trades. No matter what trading edge, forex strategy we use, we never know if the trade will be winning or losing trade. All we can control is our trading process on each & every trade we take. When you trade the system, rules are always the same on each trade you take. The market is just too big to predict and you can’t be right on every single trade.

Do not forget please – the market is the boss and will be always right! Worrying about ONE particular trade makes no sense. We see one trade belonging to a larger trades set. When we take a trade, we don’t care if it’s winning trade or losing trade.

Only thing we care is that we follow our trading process. After, the probabilities do the rest.

Do not forget – Trading is a business of probabilities.

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