Risk management is one of the most important concerns when trading Forex pairs. While there are many strategies which can be employed, utilizing a lot calculator is always wise.
- How does this tool work?
- What are its main benefits and are there any suggestions to keep in mind?
Whether you are new to this sector or you are a seasoned veteran, the information below will come in handy. Let’s take a closer look at a lot size calculator.
What is the Purpose of a Lot Calculator?
A lot calculator is also known as a position size calculator or a stop loss calculator in Forex circles. This tool essentially determines how many units of a particular currency should be bought or sold at a specific time. In other words, a lot calculator is used to understand your current level of exposure better.
By calculating the Lot Size, you limit the associated risk (as well as to increase your profit margins). Such a Forex calculator app can usually get downloaded for free or accessed by navigating to websites such as Forex Factory.
Information Needed to perform a Lot Calculator?
The answer to this question will depend upon the exact lot calculator in question. Still, you will need to provide some essential data points to ensure an accurate outcome. Some standard metrics which are often required include:
- The type of account currency
- The position size (the number of units)
- Your stop-loss (measured in pips)
- The currency pairs
- An acceptable risk percentage
Once this data gets entered into this Forex calculator, the results regarding a standard position size will be displayed immediately. The good news is that a lot size calculator is generally free to download, and it will not require much memory.
A Closer Look at Risk Management
Now that we have examined the basic principles of a lot calculator, it is a good idea to apply this tool in a real-world scenario. Let’s imagine for a moment that you have an active trading account worth €5,000. Let us also assume that you are willing to risk no more than five per cent of this total account during any single trade.
As opposed to manually determining a position size (and possibly making an error), a lot calculator employs an algorithm to provide you with a much more accurate margin. So, you are better able to mitigate your level of risk.
What Goes Into a Good Lot Calculator?
Simplicity is arguably the most critical feature of a trustworthy lot size calculator. All the fields should be self-explanatory and easy to understand. Many modern versions also contain areas to enter “mini” and “micro” lots; important for smaller trades. Above all, it is a good idea to make sure that you get also provided with technical support in the event of a problem or question.
Acceptable Levels of Risk
It only stands to reason that you need to balance risk and reward. While a position size calculator for Forex traders is a powerful tool, how much should you realistically risk on a given trade? You might be surprised to learn that most experts limit their risk to between one and two per cent of their total account balance.
Even two per cent is too aggressive by some traders. Of course, you will be able to determine your level of risk as well as the lot size to be traded with the help of a lot calculator.
A Quick Look at Calculating Monthly Interest
We should also consider the interest of your monthly earnings concerning your starting balance. Another way to determine your overall profit margins more accurately. A Forex Lot calculator came designed to address certain variables such as:
- A more accurate view of your net savings at any given time. –
- How accrued interest will impact your account balance.
- Whether or not you need to adjust your risk management strategy.
Please note that a Forex calculator for compound trades may or may not get offered within a standard lot size calculator.
There is no reason why Forex trading needs to represent a complicated task. Thanks to modern lot calculators, you can now accurately determine how much you are willing to risk on any given trade. Which will inevitably lead to higher profit margins over a specific time. Above all, keep in mind that success gets also determined by both prudence and patience.
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
Risk Warning: Our products are traded on margin and carry a high level of risk and it is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved.