The Proper Lot Size to Trade


The Proper Lot Size to Trade

Question from Subscriber:

Hi Steve. My name is Everett Gregory and I’m a member of your FXcoaching service. I have never traded Forex before and need help. My broker is Interactive Brokers. They do not trade contracts, you have to enter the amount you want to trade. I’m having trouble figuring this out. I have attached an excel worksheet where I have tried to create the formulas to determine the proper lot size to trade. I’m not doing something right. The pairs like GBP.JPY are really off on size. Could you please help. Maybe you have a list or spreadsheet I could use. I have a $50,000 account and want to start out trading $2 / per pip, until I get the hang of this.

Thanks,

Everett.

 


Hello Everett,

Thanks for writing. I am glad to see that you are thinking correctly with the amount of leverage and risk you want to utilize. All too often, newer Forex traders will utilize too much leverage and are thus gambling. As a general rule of thumb, think $1 per pip for each $10,000 in base currency you are trading forex. Some currency pairs are more, some are slightly less. Therefore, if you want to gain/risk $2 per pip, then you want to trade $20,000 of base currency. With most Forex brokers, you have a choice of trading a Mini Lot or Regular size lot. The mini lot is $10,000 of base currency ($1/pip), and the regular lot is $100,000 of base currency ($10) per pip. I think it is pretty cool that IB allows you to choose your own trade size and not force you to trade their predetermine lot size. It’s always easier to adjust your trade size when you have so much flexibility. Thanks again for your questions.

At current prices, these are the pip values for each $10k traded:

USD/JPY, AUD/JPY, GBP/JPY, CHF/JPY, EUR/JPY, NZD/JPY: $1.23

GBP/USD, NZD/USD, AUD/USD, EUR/USD: $1.00

USD/CHF, GBP/CHF, EUR/CHF: $1.02

USD/CAD, EUR/CAD, AUD/CAD, NZD/CAD: $ .98

EUR/GBP: $1.57

EUR/AUD, GBP/AUD, CAD/AUD: $ .99

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