A key aspect when an investor trades in financial markets like Forex is the application of appropriate monetary and risk management. This includes the use of an appropriate position size based on the total capital account, the risk level accepted by the trader, the level of leverage, the stop loss used, and the volatility of the instrument in which the trader is investing.
Financial markets can be extremely volatile and perform strong upward or downward movements that can produce profits or high losses. Therefore it is vital to use an appropriate position size that does not cause the trader to suffer losses too large relative to the size of the account.
It is advisable to use the same position size every time a new position is opened in the market. This value can be increased over time as investors increase the equity in their accounts thanks to their trades. The calculation of this value takes only a few minutes of our time and can help us preserve accounts during drawdowns.
It is advisable to use the same position size every time a new position is opened in the market. This value can be increased over time as investors increase the equity in their accounts thanks to their trades. The calculation of this value takes only a few minutes of our time and can help us preserve accounts during drawdowns.
Through the next tool provided by the broker HotForex, we can calculate the most appropriate position size based on the following parameters:
- Account size.
- Leverage.
- Risk ratio (% of the account risked in the trade).
- Stop loss (in pips).
Thus, the tool will indicate the recommended position size in lots (lots, mini lots, and micro-lots) and units.
