Figuring Out Bag Sizes

To make things easy peasy lemon squeezy for you, like always, we’re gonna break it down with an example. 🤓💥

Meet Newbie Ned, y’all.

Way back in the day, when Ned was even more of a noob than he is now, he totally wiped out his trading account 'cause he went ham on some massive positions. 🙅‍♂️💸

He was out here thinking he was a cowboy from the Wild Wild West – trading off the cuffs and shooting big shots. 🤠🔫

Ned didn't really get why position sizing was a big deal, and ya boy’s account took a massive L because of it. 💀📉

Now he’s back at the School of Pipsology to make sure this time he’s got it on lock, and to make sure what happened to him right there doesn’t happen to y’all! 🏫🔥

In the examples coming up, we’re gonna show you how to calculate your position size based on your vibe and wallet. ✌️🤑

The size you go big or go home with also depends on if your account cash is the same as the base or quote money. 💰

If your account money is the same as the counter currency…

Our dude Ned just threw USD 5,000 into his trading stash and is all set to make moves again. Let’s say he’s now team swing trading on EUR/USD, risking about 200 pips per adventure. 🚀💸

Ever since that epic fail with his first account, he promised to never put more than 1% of his dough on the line per trade. 🤞💡

So let’s figure out how big he should go to stay chill and not freak out.

So using his bankroll and the chill factor he wants to keep, we can see how many dollar bills he’s risking. 💵

USD 5,000 x 1% (or 0.01) = USD 50

Then, we chop that risk amount by the stop to find the value per pip. It's lit. 🔥

(USD 50)/(200 pips) = USD 0.25/pip

Finally, multiply that value per pip with a known EUR/USD unit/pip value ratio. In this case, with 10k units (or one mini lot), every pip dance is worth USD 1. 💃💸

USD 0.25 per pip * [(10k units of EUR/USD)/(USD 1 per pip)] = 2,500 units of EUR/USD

So, the new and improved Ned should only ride with 2,500 units of EUR/USD or less to keep his cool in his trade game. Otherwise, he’s sliding back to his cowboy days. 🚫🎰

Pretty simple, right? 😎

But what if the dough in your account is the same as the base currency?

If your account money is the same as the base currency…

Let’s say Ned is lounging in the eurozone, decides to hit up forex with a local plug, and puts down EUR 5,000. 💶🌍

Using the same fresh trade example as before (EUR/USD with a 200 pip stop), what’s Ned’s move if he’s only risking 1% of his stash? 🤔

EUR 5,000 * 1% (or 0.01) = EUR 50

Now we gotta flip this into USD 'cause the currency pair is all about that counter currency vibe. Say the current EUR/USD exchange rate is $1.5000. 💱

All we really gotta do is flip this exchange rate and multiply it by the euros we’re chill risking. 🤯💶

(USD 1.5000/EUR 1.0000) * EUR 50 = approx. USD 75.00

Next, split your USD risk by your pip stop story:

(USD 75.00)/(200 pips) = $0.375 a pip move. ⚖️

This tells Ned how much each pip move cares about with a 200 pip buffer, keeping it cool with his risk vibe. 🙏🧘‍♂️

Finally, multiply the value per pip move using the unit-to-pip value situation:

(USD 0.375 per pip) * [(10k units of EUR/USD)/(USD1 per pip)] = 3,750 units of EUR/USD

So, keeping it chill with a EUR 50 risk on a 200 pip EUR/USD lap, Ned’s size shouldn’t be more than 3,750 units. 🛡️✨

Still feelin’ simple, eh? ⛅😄

Now it’s a smidge trickier, but don’t trip chocolate chip. We got you with all the sauce so it’ll be as easy as scarfing a slice of cake. 🍰🔍