Portfolio size: $5,000 Max risk percentage per trade: 2% ($100)
Trade type: Buy (go long) Currency pair: USD/JPY
Entry price: 136.80 Stop loss: 136.30
Step 1: Calculate pips risked in trade
As each pip movement is two decimal places on each currency, you’ll multiply the difference between the entry and your stop loss price by 100.
Here’s the calculation: Trade risk in pips = (Entry – Stop loss) X 100 = (136.80 – 136.30) X 100 = 50 pips
This means, you are prepared for the market to move 50 pips away from your entry before you’ll be taken out of your trade for a loss.
Step 2: Find your ‘value per pip’
‘Value per pip’ = (Portfolio risked per trade ÷ Pips risked in trade) = ($100 ÷ 50 pips) = $2
This means, on your trading platform you’ll type in, $2 for where it says ‘Rands risked per pip’, ‘Pip value’ or ‘Volume’, place your entry price at 136.80 and your stop loss price at 136.30 in order to risk $100 of your portfolio.
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