Trade size plays a vital role in managing risks when trading Forex.
As we've mentioned in our previous article on lot sizes, the larger the lots, the higher the profit and loss per pip. Thus, the need to determine your position size when trading currencies.
So, what’s the best lot size for you?
It depends on four things:
Equity/capital you have in your account
Risk you're willing to take with your trading account
Number of pips you are willing to lose
Pip value of the currency pair you are trading
First, let's take risks into account.
You've probably heard of the 1-percent risk rule that will keep you from losing more than 1% of your capital. But what if you’re a bit of a risk-taker?
A good way to calculate your risk percentage against your account balance is to use the formula:
Starting Balance x Risk = Loss
Therefore, if your account balance is USD10,000, you can lose:
USD100 at 1% risk per trade
USD200 at 2% risk per trade
USD300 at 3% risk per trade
Remember that these numbers represent your gains and losses in a single trade. Imagine if you risk 2% or more. The general rule of thumb, however, is to not risk more than 5% of your account size per trade.
Fullerton Markets International Limited (FMIL) is committed to providing the highest level of service to its customers. In some instances, and due to regulatory or legal requirements, FMIL is unable to provide services or accept customers from certain countries. Currently FMIL does not accept customer from Iran, Cuba, Sudan, Syria and North Korea. FMIL subscribes to the rules of FX regulated jurisdictions such as Hong Kong, Singapore, Japan and United Kingdom accordingly, does not accept solicited clients from these countries. This is not an exhaustive list of countries from which FMIL does not accept solicited clients and is updated as required. Customers should familiarise themselves with the FX rules applicable in their country's before deciding to use FMIL's services.
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 trade 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.