Lot Size vs Currency Units Chart
||$ Per Pip
Why You Should Use A Forex Lot Size Calculator
Professional traders use a lot size calculator (also known as a position size calculator) because it keeps their risk consistent across multiple trades so they’re not over-risking their capital. The general rule we like to follow and that most institutional or funded traders follow is to risk no more than 1% of their account per trade.
Most institutions risk even less than this per trade (0.5%-0.25%) as they’re managing large sums of money. As a trader, it’s your responsibility to manage your risk and protect your capital by using strict risk management rules. The other reason professional traders use risk based position sizing is to take advantage of compounding gains in their account.
For example, if you have a $100,000 USD account, risk 1% ($1,000 USD) and make 10% in profit on a 10R trade, you’ll now have an account balance of $110,000 USD. Now on the next trade you’ll continue to risk 1% per trade which would now be $1,100 USD. By using risk based position sizing you will naturally scale your risk up and down depending on the size of your account and maintain a consistent risk of ruin while also taking advantage of the compounding gains effect.
Risking more than 1% per trade on any account no matter what size it is means you have a higher total loss risk (also known as risk of ruin), which means you run a higher risk of blowing the account entirely in the event of a losing streak.
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