If there are two principles to trading that most traders ignore, it is risk management and proper position sizing. Over a course of many trades, even with a robust strategy, performance will suffer if proper position sizing is not implemented.
Now, with the assistance of Aspen Trading Groupís FX Risk / Position Size Calculator you can immediately determine the correct amount of forex lots to trade each time while also knowing your total risk exposure as a percentage of your portfolio.
Simply plug in your starting capital, amount you wish to risk per trade as a percentage of your capital and your stop loss price. Instantly the results will be displayed.
"Why do I need to adjust my position size, I normally trade the same amount each time?"
Your performance will vary significantly, for better or worse, if you do not risk a consistent amount on each trade. If a trade has a large stop loss and you trade the same size as you would if the stop loss was far less, the amount of risk you incur increases greatly. Let's look at an example.
A sampling of 100 trades from our FX Alert Service provides a great example. Trader A took all 100 trades and adjusted the size of each trade to risk roughly 1.5% of their account versus Trader B who traded 5 FX-mini lots throughout. Based on a starting equity of $20,000, look at the difference:
Trader A 38.2%
Trader B 14.8%
Same trades; dramatically different results.
Click here for a screenshot of the calculator
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Note: Pip values can be updated by entering them in the calculator.
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Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.