How to manage risk is one of the most important knowledge that a forex trader should have. Novice FX traders often focus on testing multiple indicators. Expert FX traders, on the other hand, pay more attention to risk control. Some believe that proper risk management can determine whether a forex trading strategy is good or bad.
In Forex, no matter what your trading strategy is, neglecting risk control is a guarantee that your operations will fail. Consequently, not knowing how to calculate or miscalculate the size of your positions, will surely lead you to make losses.
Careful risk assessment and management is probably what most defines the difference between a novice forex trader and a professional one. The former tends to focus more on testing different indicators and strategies. For newbies, it urges to find something that promises big payoffs quickly. And in this search, they tend to rely on great leverage and take risks that in a short time place them in unsustainable losses.
Instead, professional forex traders make risk control the foundation on which to build their trading strategy. For them, estimating the potential loss is much more relevant than the possible gain.
So it is essential to know how to accurately determine the appropriate size of the trade position to be opened. A position that is too small will not allow us to obtain a benefit proportional to the size of our account deposit, but even more damaging is to lose all our capital by opening a position that is too big.
Key Forex Concepts
You must know several concepts that are essential when calculating position size. Below, we mention some of these concepts and give a brief explanation for each of them. You should look up all the additional information to ensure that you understand each of these concepts properly before proceeding with the calculations.
- Forex pip: the smallest unit that measures the minimum change in the quote of a currency pair.
- Currency pair: in FX markets shows the relation between two different traded currencies (e.g.: EURUSD).
- Base Currency: first currency that appears in a forex pair quotation (e.g.: EUR in EURUSD).
- Quote Currency: second currency that appears in a forex pair quotation (e.g.: USD in EURUSD).
- Account balance: total of money available in a trading account.
- Account equity: it’s equal to the account balance including the value of the open positions.
- Forex lot: unit to measure standardizes trade sizes.
- StopLoss: predetermined price that is placed in the order to close the position if the market moves in the opposite direction.
MT4 Forex Position Calculator
Forex Position Size Calculator for MT4 does all the calculations automatically. Its use is very basic and intuitive and works for all symbols.
Simply attach the indicator to the symbol you want to trade, set the percentage of the account you are willing to risk, and accept. Immediately a box will appear with the button ‘Lot Size’, and a line will be drawn showing the distance in pips to the current price. Now you only have to move the line to the distance where you intend to place your StopLoss or TakeProfit level, and when you click on the ‘Lot Size’ button, the appropriate position size will be shown.
In any case, the best way to check its operation is by testing it. So simply, download it and install it in the ‘Indicators’ folder of your MT4 terminal. You can share it with whoever you want. The tool is completely free forever.
Forex position size calculator download
Note: the current version of the tool is v1.2. It was updated on 04/14/2020 based on reports and additions suggested by the customers.