How to Determine Forex Trading Volume
How to Determine Forex Trading Volume that is ideal for you is the right way to limit margin ( margin call ) due to excessive use of margins ( high leverage ) by opening open excess positions (over trading) without taking into account the amount of capital owned. By determining the right trading volume, you are expected to have a great opportunity to gain profits and reduce potential losses.
Lots of forex traders lose capital because using a large trading volume exceeds the ability of the capital which in turn will make the margin call executed before the price target is exceeded so that your capital will decrease.
So when you use such a large volume of trading, whatever analysis you have may not be useful unless you have luck 🙂 continuously. Well for that you also have to adjust the amount of risk that you want to face by calculating the amount of trading volume.
Before you start determining the trading volume there are two questions that need to be answered to get the calculation parameters.
- How much risk can you face for each trading position opening? recommended no more than 2% capital.
- How big is the loss (loss) to the open position in units of pip
Determine the amount of risk (percent)
We are the one who determines the amount of loss and profit and not the forex market. It is your financial management system that determines when you must enter and exit the market. For the amount of risk that you need to face, it is recommended not to exceed 2% of the total capital for each trade. Almost all traders successfully implement this management system while others never pay attention to this.
The following is an example of how to determine the amount of trading volume with a capital of $ 2000 the amount of risk that can be faced by 2% of capital and the amount of loss of 100 pips.
Forex Trading Volume
Because we already have 3 calculation parameters, namely the amount of capital, the amount of risk, and the amount of loss in units of pip, this is the formula for determining the right forex trading volume.
Maximum value per pip = (Capital x Risk) / Loss distance
Capital = $ 2000
Risk = 2%
Distance loss = 100 pips
The maximum value per pip = ($ 2000 x 2%) / 100
The maximum value per pip = $ 0.4
So you have to find a currency pair for which each pip increase or decrease in value is not more than $ 0.4. For example, trading volume is 1000 (1K) EUR / USD value per pip of $ 0.1 then you are only allowed to trade as many as 4000 (4K) EUR / USD. And when the direction of movement of the EUR / USD currency pair is opposite to your Open Position at 100 pips, you must close the position.
For example, you open a position of buying (Open Buy) EUR / USD 1.4450 as much as 4K. And then EUR / USD moves 100 pips towards 1.4350 (in this case you are against the direction of market movements) then you will suffer a loss of $ 40 (according to the target risk) and you have to close the buying position at the rate of EUR / USD 1.4350. To do this method (stop loss) you can do it automatically using the broker’s facility.
To determine the value per pip you must see it through your trading platform and maybe each broker is not the same.