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Calculate Forex Position and Margin requirements

Posted on 25. March 2019 in [ softwaredevtrading ]

If you go for manual forex trading you need to calculate the correct position size. The position size and margin requirement depends on your risk and money management and needs to be calculated for every trade again.

Let’s have a look at the formulas to calculate the risk, position size, pip value and margin.

Account Risk

First we need to have a look at our account size, how much we can risk and how far our stop loss is for the next trade.

Variable Value
Account denomination EUR
Account balance 10,000.00
Risk in % 2
Stop Loss in Pips 12

Instrument

Let’s have a look at the instrument we want to trade. In our first example we use EUR/USD. Note that the base of the instrument is equal to the account denomination. EUR/USD == EUR.

Variable Value
Instrument EUR/USD
Contract Size 100,000
Point 0.0001
Exchange Rate Ask EUR/USD 1.1201

Formulas

Risk

The formula for the risk in account denomination is common:

That is 200 EUR risk for the next trade.


Pip Value

Ok, now we need to calculate the pip value:

The pip value is 8.9277 EUR.


Lot & Units

As we know that we want to risk 200 Euro for a 12 pip stop loss we now can calculate the lot size:

The Lot size is 1.86684. Or if you want to have that value in units you need to multiply it by the contract size value.


Margin Requirement

To get the required margin for your trade you need the margin ratio and the margin exchange rate.

Variable Value
Margin Ratio 30:1
Margin Exchange Rate EUR/EUR 1.0000

The required margin for this trade is 6,222.80 EUR.


Base currency != Account denomination

But what if the base of the currency pair does not equal to your account denomination like in GBP/JPY. Don’t worry, it’s simple.

The only thing we need is the Ask price of EUR/JPY as our exchange rate and put that in the formula for the pip value. Also note that the point size is 0.01 for JPY pairs.

Variable Value
Instrument GBP/JPY
Contract Size 100,000
Point 0.01
Exchange Rate Ask EUR/JPY 126.525

Pip Value

The pip value equals to 7.9035 EUR.


Lot & Units

The lot size is 2.10877. In units this is 210877.


Margin Requirement

Variable Value
Margin Ratio 30
Margin Exchange Rate ASK GBP/EUR 1.32389

The margin requirement for the GBP/JPY trade is 9,305.93 Euro.

Is there an app?

That is a lot of math for one trade and as the markets are fast in lower timeframes I don’t want to do the math in my head. So I decided to put in some work and developed a small application for this. I call it FX Calculator and it is a macOS app.

FX Calc Screenshot

Buy FX Calculator!

Or you can download the source code of FX Calculator on github and compile it yourself.