Forex lot size for beginners

A concept doesn't have to be complicated to be useful, don't you think so? That's why today, with this video, I want to show you easily how you can do position sizing in Forex. And in principle this is much more complicated than the position sizing in stocks. You may be familiar with that. When you know your entry point and your stop loss and you know your risk per trade and your capital, then you can, with the position sizing formula that I explained in a previous video, quantify how many shares you need to buy or sell to get that risk. But in Forex we don't have the number of shares. Everything you trade may have different rules. For example, when you trade futures you can have your contracts instead of number of shares. Option is different. And for Forex we have lots. Okay, but just for now, since I don't really want to give you all these details that you can find online, but only what is really useful for you to place trades, let's just write this down. So in the stock market we have the concept of shares, okay? In Forex we have lots. And this means that when we are buying something in Forex, and I show you here an example. With this platform, if we want to buy eurusd. So remember in Forex you are trading pairs, they ask you the volume and this quantity that can be fraction also is the lot. So If I write one, it means I'm buying one lot. If I write 1.2, I can buy 1.2 lot. And this is a big difference because with compared to the stock market, because we can have fractions here, we can have one point something. Now you may be wondering what is a lot? If you really want to understand, there are resources online that you can consult. But what I want to show you here is just the main concept that you need to be familiar with when you want to place a trade. So we don't really need to understand the logic behind the computation what is a lot and all this, we just need to understand how it works. So before doing that, there is another concept that you need to understand is the concept of pip. So what is a pip? You see here, for example, we are doing, we are showing the EUR US dollar and then you have these numbers. Okay? Now this last number before the small one here. So now this 0 and this 0 here, this is 1 pip. Okay, so this position is the 1 pip. What do I mean? Now I have 1.1230. If I want to add 1 pip will be 1.1231. Okay, so the fourth decimal is called pip. And you can think of pip as the unit for forex, similarly to the dollar in the US market. Okay, so what we can say is that in the stock market we have the dollar. Here we have the pip. So with this we start to understand parallel between these two. Now, when we want to place a trade, what happens? Again, we have entry point and stop loss. And then we need to understand, given our risk and capital, how many lots to buy. Okay, so let's take as example the EURUSD and say we want to enter at 1.1232. Okay? And let's say that the stop loss is 1.12. I don't know, 10. It's just an example. Okay, and this means that the difference between entry and stop loss is 22 pips, right? Is similar to the distance between entry and stop loss in, in the US market, for example. But instead of having US dollar, as I say, now we have pips. Now in this situation, suppose you have an account of 10k US dollar and you want to risk 1% for trade. The question is, how many lots do I have to buy to have this risk? Okay? And the easiest way to do that is to use a free tool online that I want to share with you. Now this tool is this. I will give you the link in the description. But basically what we do is very easy. So let's cancel this. We can write here the account size 10,000 US dollar and the risk. We say one. Okay? And how many pips? Our stop loss, we said it was 22, right? The difference between entry and stop loss is 22 pips. Our account is in US dollar and we are trading EUR USD here, right? And then we calculate, and then we will find out that we need to buy 0.455 lots. So if we want to execute the order that we just mentioned, right here we have to put 0.455. Okay? And here we can put, let's say buy stop order 32 and sorry, this is the stop loss, Something like that. Okay? So we can buy at 1.1232, for example, and then the stop loss is at 1.1210. So we have 22 pips of difference. And how many lots do we buy to risk 1% of our capital? 0.455. Now this can be different for different pairs. For example, if we go to, I don't know, US dollar, Canadian dollar. So everything is the same, same capital, same risk, same stop loss, same. But look what happened when we go here, USD, Canadian now you see, the number of lots is different, okay? Because this is also computed take into account the USD Canadian price. So that's why I'm saying that this formula is more complicated than the position sizing stock. But we are the lucky because this website is free and it can easily tell you how many lots to buy. So you see, you don't really need to understand the logic behind the computation. This is done for you. The only thing I want to mention here is that the concept of pip and if you want to find more information, I suggest you this website, babypips.com is very, very good and useful for forex. They will tell you that the pip is basically the last decimal point, okay? The last decimal place of the price quote. And as I said, you can take this number before this small number. The small number is called pipette. You can ignore is basically one pip. Is that the small like the three. In this case, the only difference is the Japanese yen. Remember that because if you look at this one, you see is the fourth decimal point you take pound US dollar again is the one pip is the four decimal point Aussie dollar US dollar four decimal point. But the Japanese is different. So if I want to trade Japan, for example, instead of four decimal points I have two decimal points. It's again the small number. The. Sorry, the number before the small number. So 1 ppr is not the fourth decimal point, but is the second one. So what do I mean by that? Suppose I want to place a trade for US dollar Japanese yen. Okay, Where is it? This one. And again my stop loss is 22 pips. So first I have to buy 0.491. Okay? So here I have to put 0.491. And suppose I want to buy at 107.93. If my stop loss is 22 pips below then is 107.71. So you see now 22 pips are basically 0.22. In the other pairs, 22 pips will be 0.0022. Okay? So this is the only difference that you have to remember when you are trading Japanese yen. But all the rest is the same. So again, when you trade forex, what is the main concept? Instead of shares as in the market, they use the stock market. We have lots and instead of dollars we have pips. And pips can be different from the depending on the pair that you are trading. So remember that for the Japanese yen is 0.01, okay? This is one pip. For the others is 0.0001. And if we want to compute the position sizing, we can just go to the website here and we put all the information and then we will know how many loss to buy without worrying about how this is computed. So I hope this video was useful. If you have any question, you can leave me a comment and as usual, see you next time.