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Old 04-16-2008, 03:21 PM   #1 (permalink)
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Forex Trading - How to Calculate Your Position Size


Previous Lesson

In my opinion Forex Capital Markets (FXCM) offers the most comprehensive services, and best trading experience in the forex industry.




Next Lesson - Full Forex Trading Course

In our last lesson we learned how to place our first forex trade using our real time demo trading accounts. In this lesson we are going to continue our discussion on the logistics of forex trading with a look at how positions are sized in the forex market.

As with any market you need to specify the amount of a currency pair that you are going to trade as a part of the trading process. Although technically in the spot FX market there are no contract standards since the market trades over the counter, most Forex Trading firms standardize the minimum position size in which you can trade. Once this minimum position size is established then the trader can trade the minimum or any increment thereof going up from there.

Although it varies by firm, most forex trading firms offer at least one of, if not all of, the following options for position sizing:

Option 1: Standard Account A standard account trades "standard" contract sizes which in the retail fx market are 100,000 of the base currency. So for example if you are trading EUR/USD then the minimum position size you could trade would be 1 contract which would equal 100,000 Euro's against the equivalent amount in US Dollars. As the EUR/USD is trading at 1.5678 as of this lesson that would be 100,000 EUR against 156,780 US Dollars.

As a second example if you were trading USD/JPY in a standard account then the minimum you could trade would be 100,000 US Dollars against the equivalent amount of Japanese Yen. As the Japanese Yen is currently Trading at 101.27 against the US Dollar this would be 100,000 USD against 10,126,000 JPY.

Option 2:Mini Account A mini account trades "mini" contract sizes which are 1/10th the size of standard contract sizes or 10,000 of the base currency. So using our examples above if you were trading EUR/USD the minimum you could trade on a mini account would be 10,000 EUR against $15,678 USD.

If you were trading USD/JPY in in a mini account then the minimum amount you could trade would be 10,000 USD against 1,012,700 JPY.

Option 3 Flexi Account: A flexi account allows you to trade any size you would like. So for example instead of having to trade a fixed position size in a flexi account you could trade a position size of 5,765 EUR/USD which would be 5,765 EUR against the equivalent amount of USD.

As you can see from these examples one of the great things about the forex market is the ability to trade very small position sizes, which allows traders to start with a smaller account balance and avoid being over leveraged, something we will discuss in later lessons.

Secondly, as normally the spread which you pay does not increase as the trade size gets smaller and there are no commissions, the transaction cost you pay for the trade gets smaller as the trade gets smaller as well.

As a quick example lets login to our demo trading accounts and place another quick trade. If you have not done so already I encourage you to pause this video now and register for a free demo trading account which you can do by clicking the link above this video if you are watching on InformedTrades.com or to the right of this video if you are watching on YouTube.

Once logged into the account choose the currency pair that you want to trade and click in the dealing rates window to bring up the market order box. In this box you will see a line that says "Amount K". As you will notice if you pull down the drop down menu there it goes in increments of 100K or 100,000 of the base currency. As you should now know from learning about the three types of accounts that we just covered as we are trading a contract size of 100,000 of the base currency we are currently on a standard account.

As you can see from the market order window if you would like to trade more than 100K then simply pull down the drop down menu and select the amount you would like to trade in any increment of 100,000 of the base currency and you are good to go.

Thats our lesson for today, in our next lesson we will learn what a pip is as well as something known as fractional pip pricing how to calculate profits so we hope to see you in that lesson.

As always if you have any questions or comments please post them in the comments section below, and have a great day!

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Old 09-28-2008, 07:33 PM   #2 (permalink)
 
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How to close your position


Hi David, I have started trading and am satisfied with my gains. How do I properly close my position other than using the cancel option?
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Old 09-28-2008, 11:22 PM   #3 (permalink)
 
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I figured it out


Hi David, I figured out how to close my position. .. Just click the closed position tab and then close..
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Old 09-29-2008, 09:06 AM   #4 (permalink)
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Hi Sannyg,

Glad to hear from you and welcome to the community.

Yes to close a position you can either click the position that you wish to close in order to highlight it, and then click the close button, or simply click on the close rate in the close column of the open positions window for the position that you wish to close.

If there are any other questions or comments please feel free to post as always.

Best Regards,
Dave
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Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.
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Old 12-08-2008, 01:49 PM   #5 (permalink)
 
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Demo Account default is set to 10K


Hi Dave

I'm following this lesson - my options to select contract size runs 10K to 100K with a default of 10K.
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Old 12-08-2008, 08:34 PM   #6 (permalink)
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Hi Ilivebythesea,

Glad to hear from you and welcome to the community.

When I originally did the forex videos FXCM's standard account traded a contract size of 100K of the base currency. Now as you see in your account it trades a contract size of 10K of the base currency, so essentially the "standard" account has become the "mini" account.

This is a benifit to traders as they do not pay anything extra for the ability to further customize their positions below 100K in 10K increments. If you would like to trade above 100K you can do so by typing the amount into the amount K line of the order window.

Please let me know if there are any other questions and look forward to seeing you around the community.

Best Regards,
Dave
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Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.
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Old 12-09-2008, 04:28 AM   #7 (permalink)
 
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FX - Fundamental or Technical Analysis?


Thanks Dave


I know this will probably be covered - but is FX trading slanted more towards Fundamental Analysis rather than "trading what you see on a chart"?

Thanks
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Old 12-09-2008, 10:03 AM   #8 (permalink)
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Hey Ilivebythesea,

Good question. Similar to other markets short term FX Traders tend to focus on technicals while longer term traders tend to focus on Fundamentals or a mix of technicals and fundamentals.

Best Regards,
Dave
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Old 02-27-2009, 11:04 AM   #9 (permalink)
 
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Paper Trader


Hi David,
Enjoying your tutorials very much. Great work!

I'm just getting the hang of the trading platform, and making and losing money at an alrming rate. As I get more used to the logistics of placing FX trades I'm beginning to wonder just how authentic a trading experience this demo trading actually is.

Obviously, the psychological ramifications of trading with my own cash as opposed to pretend money are very significant, but to what extent does the trading activity reflect the real life situation of placing trades?

The particular area I'm concerned about is the way in which the broker will execute my trades, and treat my trades in general. I've come across a disturbing phenomena on other sites called 'stop hunting', and this is something that looks as if it might knock the shine off any trading experience. Since you've worked in the Forex market yourself, I guess you're ideally placed to comment on this.

Is it something traders should be concerned about?

Thanks

Major
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Old 02-27-2009, 12:32 PM   #10 (permalink)
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Hi Major,

Glad to hear from you.

You are correct that the difference psychological affects that are present when trading live money make the difference between trading demo and live like night and day in my opinion. With in mind, in my opinion if a discretionary traders is profitable on a demo account this only increases his or her success on a live account by a little bit at best. If a trader is unprofitable on a demo however then the odds of being profitable on a live account are slim as well, which is one of the reasons why I personally believe that demo trading still holds some value.

For more on this discussion go here:

Techincal Strategy Seems to be working on Paper Money - but how can it be so EASY?

From my experience the execution on a demo and a live account with most of the larger brokers is pretty much identical, although I know there is a lot of debate out there about this. While I am sure there certainly have been instances of "stop hunting" by brokerage firms in my opinion 95 or more percent of the time that traders complain about this, it is just a new trader who has lost money and wants to blame someone other than themselves.

For more on this discussion go here:

how to prevent stop hunting

and Here:

Who pays you the profits??

Hope that helps.

Best Regards,
Dave
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Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.
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