Last update 2020.08.08
We often talk about the price of forex pairs or fx symbols but there is other equally important information to be decided for each trade. The total amount per order or the size of the trade is one key aspect. It is related with the willingness to take risk, and there is no general rule to it, as other factors must be considered. This article explores ways for you to understand how forex position sizing can be good for your trading.
#1 Position Size = number of contracts/units of an instrument you buy or sell. However, Position Size and Risk Amount are not the same.
#2 Contract or Lot, is a unit of measure for position volume, which is a fixed amount of the base currency on the Forex market. The volume is always indicated in lots, and the size of lots directly affects the level of risk. The standard lot is 100,000 currency units, typically has a value of $100,000 if we take trading in US Dollars as an example.
As a very high risk operation you can lose money very fast if you enter a large investment position at once. Most of the research information about position sizing brings a tip to avoid dealing with more than two percent (2%) of your principal each trade. That means that if you have $5,000 you should never use more than $100 to invest on each order.
When it comes to forex trading, you might ask how much does $100 represent in units or lots? First, we need to know that a typical forex contract is a bundle of 100,000 units equal to one standard contract.
On Forex trading, positions can only be opened in certain volumes of trading units called contracts or lots, depending on the forex broker. A trader cannot buy, for example, 1,000 euros exactly, they can buy 1 lot, 2 lots or 0.01 lots, etc.
As a trader, it is crucial you know how many units you are exposed to when placing a trade in the broker. Depending on the type of contract you trade, there is a specific quantity of the underlying assets in each Unit.
Below are three of the most common forex contract sizes and their underlying units:
- One Standard Contract or Lot = 100,000 units of currency;
- One Mini Contract or Mini Lot = 10,000 units of currency;
- One Micro Contract or Micro Lot = 1,000 units of currency;
- One Unit of Contract = 1 unit of currency.
Depending on the Broker, we can also use these following conversion:
- Mini Lot: 0.1 Standard Lot;
- Micro Lot: 0.01 Standard Lot;
- Unit of Contract = 0.0001 Standard Lot.
The standard lot (or contract) in Forex trading is 100,000 units of base currency. For example, if the EUR/USD rate is equal to 1.1845, then the position with a volume of 1 lot will be opened for 118,450 units of the base currency, i.e. this is how many US dollars you need to buy 100,000 euros.
So, let’s suppose that you have an account in my forex broker that is in USD and you entered a long order with a Standard lot of EUR/GBP that moved 50 pips in the way you wanted (consider EUR/GBP = 0.8964). So if my position size is 100,000 units of Euro, 50 pips in GBP means 50/0.8964 in EUR(55,8 pips in Euro). The amount of money profited in EUR is 100,000*0,00558 (558 Euros), to change that to our base account we must multiply to the quotation of EUR/USD(consider 1.1249). So 558*1.1249 is the amount of money profited in USD which is 627,69 dollars.
The is important to remember is that forex and CFDs (Contracts for Difference) are other Over the Counter (OTC) markets and contract sizes and other trading specifications are not standardized. Furthermore, the ability to hedge positions may also vary, depending on where you trade.
Choosing the right trade size in forex
We discussed standard contracts earlier, which are designed for larger companies and investors, and is why they are 100,000 units in size, compared to the smaller mini and micro contracts.
The ability to offer options to smaller investors by brokers is why mini contracts for 10,000 Units size are offered. Furthermore, retail traders seeking to test a trading strategy or open smaller trade amounts that are more specific, can trade micro contracts of 1,000 units. It allows trades to be fine-tuned, as you can buy a contract of EUR/USD and some mini contracts to reach as close as possible the target position size that you either want to hedge or to open a new trade position.
It is important to understand that the position sizes are proportional to the speed you will use your account margin. We discussed in earlier posts that most brokers allow you to leverage your margin trading, to be able to open positions that are bigger than your total amount of principal in your available balance. This form of leverage can lead to quick losses and can consume your resources faster.
We must be aware that each day new market opportunities occur, and if you use all your margin with too big positions sizes in a few trades, you will probably miss new signals or need to put more money in your account to seize them.
The position size is the key variable to set the level of risk of your forex trading operations. That is why we never recommend exposures bigger than one percent of your principal in the broker.
It is very important to be consistent in your investment strategy, because you need to be able to compare the results of your trading history over time. If you change more than one parameter each trade, you can miss important information about what happens (especially if the trade has a bad result). Keeping a detailed journal of your trading and the decisions to change parameters can help you better understanding the outcome and what to consider tweaking.
On the other hand, for many forex traders there is too much information to track, and that is why Wiseinvest has set out to help the trading community with the launch of Wiseinvest automated AI trading system and AI signals, which helps do a lot of the work for you, in terms of finding trading opportunities and knowing when to enter and exit the market.
Wiseinvest uses professionals with extensive experience to set the parameters of our trading system powered by Artificial Intelligence (AI) to identify forex market trades. That is why you can trade automated in partner brokers or manually with AI signals in the broker of your choice.
Calculate the proper position size is crucial to have a successful strategy. Wiseinvest has the best A.I. to help you on on your journey towards successful trading.
It’s also essential to know how to balance the risk, even for very small operations in forex. Let’s say you use $50.00 as margin to establish a new trade, knowing how to manage the risk/reward levels on a small amount will let you later learn how to move towards more serious investment levels in the feature.
Wiseinvest has a risk calculator that will determine the right position size to each of your orders. You will not find this easily in others forex portals and certainly not this cheap. It makes Wiseinvest the best option among copy trading and social trading platforms!
The best way to trade forex
There are two ways to invest with our AI in forex:
1. Automated with AI-Trading. Check out the 3 steps to trade automated with our AI.
Don’t you have a broker account yet? Our AI is integrated to trade automated with the broker Oanda. Click here to open an account.
With Automated AI trading you do not need MT4 / MT5 and other trading platforms to invest in forex. All forex trades are automatically placed into your broker account and you can monitor the AI trading performance directly on our dashboard.
2. Manually with AI forex signals.
Wiseinvest also provides AI forex signals that perfectly fit into MT4, MT5 and any trading platform. To trade with our AI forex signals, you must simply copy the data you receive from each real-time signal into any forex brokerage account of your choice.
There are five unique variables for each AI signal, and each must be copied exactly, in order to match the performance of the signal as close as possible.
Each AI forex signal alert consists of the following five data points:
- Symbol (forex pair)
- Direction (long or short)
- Position size (number of units or lots)
- Take profit (price level to exit with maximum gain)
- Stop loss (price level to exit with maximum loss)
You can trade forex with our free forex signals clicking here, or with our Premium subscription that provides you unlimited AI signals and automated AI trading in partner brokers. Whether you are a beginner or a Professional forex trader, our AI trading system can help you save time and improve your trading performance. Get started with free AI.
- Subscribe to a Wise-Plan.
- Open a Brokerage account. Check this article about the best forex Brokers.
- Set an amount and a position size on your Wiseinvest dashboard.
- Copy the signals that we will send to you via email and paste you’re your Brokerage account.
The forex signals are sent every time that our trading system powered by Artificial Intelligence (AI forex system) identifies a new trading opportunity.
When investing through Wiseinvest automated AI trading or AI forex signals, you do not need to calculate pips and change the leverage in your forex broker account. Learn more about leverage in forex trading clicking here.
- Position sizes are very relevant to create a proper trade strategy, because it sets how fast your resources can grow or decrease.
- There is a direct relation between position size and potential risk acquired.
- By using Wiseinvest AI trading or AI signals, you don’t need to spend your time using a position size calculator.
- You will have the right number of contracts presented for each Wise trades you receive as a premium subscriber.
To create a strong strategy we have designed a system supported by AI, which can help you to decide the right number of contracts for each trade position. Wise trades provides this information in each trade opportunity identified for our subscribers. You can check the latest Wiseinvest forex trades on our dashboard.
Disclaimer: Forex and Contracts for Difference (CFDs) are complex instruments and come with a high risk of losing money due to leverage. Forex trading is not suitable for everyone. You should consider whether you understand how forex and CFDs work and whether you can afford to take the high risk of losing your money.
The forex brokerages displayed shall disclaim the overall performance of traders in their platforms. Oanda warns that 76.8% of retail forex traders lose money trading CFDs. XTB warns that 80% of retail forex traders lose money trading CFDs. The forex broker Fxcm warns that 69.66% of retail forex traders lose money trading CFDs.
The performances aforementioned are not related to Wiseinvest AI forex trading and AI forex signals system. You can check the performance of our AI forex system on our dashboard.