Adrian Reid explains how base currency settings affect position sizing when trading stocks in a different currency using Amibroker. He emphasizes understanding currency conversions and outlines his workflow: maintain a capital-allocation spreadsheet in Australian dollars, convert allocated amounts to the trade currency (e.g., USD), feed that converted capital into backtests to obtain correct USD position sizes, and avoid sizing off the unconverted base-currency amounts to prevent unexpectedly large positions and drawdowns.
Chapters
The most important thing.
Is not exactly what you do, that it's, you understand what you are doing.
Okay? And the implications of it. Because there's different ways to configure this. You could have in Amy Broker, your base currency is euro, and you could run your systems, which are trading US dollar stocks, and Amy Broker will do the calculations and size everything back so that it's in your base currency. But when you place the trades in US Dollars in interactive brokers, you need to know how many, how many shares you're buying to get the right US Dollar size position.
And so as long as you do the calculations correctly and you choose the right numbers, that'll be fine. Or you could just say, look, Amy Broker, don't worry about the base currency, just run it in US Dollars, tell me the US Dollar position size, and I will place the US Dollar size in my account.
So you don't, you don't have to use the Amy Broker base currency. You can figure it out yourself. So my approach is actually I do the currency calculations out of Amy Broker because I have a spreadsheet, which is my capital allocation spreadsheet, and every day I put in my total account balance in Australian dollars at the top. And for each system, I have a percentage that I allocate to each system. And so let's say I have, let's say I have three systems. I have 33%, 33%, 33% just for an example, right? And I have, let's just say for, as an example, I have $100,000 in my account. Then 33,000, 33,000, 33,000 Aussie dollars, right? But this system, system three, just say that's a US dollar system, it's a US stock system, and that's got 33,000 Aussie dollars allocated to it. I convert that to US dollars to know what my maximum US dollar exposure is for stocks in that system. Then I take that US dollar amount and I put that into my backtest to say, hey, this is the capital that that system has available today to size the positions, and it gives me the positions in US dollars. So then I place that size of trade the risk on stocks, right? The risk in stocks is that if you don't do the conversion between your base currency and the trade currency, right? You end up with positions that are too big and you end up with a drawdown bigger than you expect.
Right? So you've got to make sure that you're sizing appropriately across the currencies. Because let's say I had in my example, 33,000 Aussie dollars attributed to one system, which should be US$25,000. Right? But if the position size is calculated off the 33, it's a big number, and I just take that and I buy that many US dollars worth of stock. My position is too big because the position should be based on the 25.
