Calculating risk

The numbers behind a trade

Position size: the amount of capital a trade puts to work, set from your risk tolerance and account size and usually expressed as a percentage of the balance.

Stop loss: a predetermined level at which the trade closes if the market moves against you; it defines the most a trade is allowed to lose.

Entry price: the price at which you enter, chosen from technical analysis, fundamental analysis or both.

Target price: the level where you plan to exit and take profit, from technical levels, support and resistance or the strategy's own rules.

Pip value: what a one pip move is worth in money for the pair and the position size you are trading.

Risk to reward ratio: the potential profit of the trade against its potential loss; a favorable ratio aims higher on the reward side, and read with your success rate it decides whether a strategy pays.

Risk percentage: the share of the account you are willing to lose on one trade, which keeps the whole portfolio's exposure in check.

Account balance: a larger balance allows larger positions; a smaller one calls for more conservative sizing.

Goals as percentages

Say the weekly monetary goal is 250 dollars. On a 100 dollar account that is a 250 percent gain; on a 100,000 dollar account it is 0.25 percent. The first is not realistic, so set goals as percentages of the account, not as a dollar figure.

Pip value, in short

The pip value feeds every one of the numbers above. On EURUSD at 1.2134 with a standard lot of 100,000 units, one pip is 0.0001 divided by 1.2134, multiplied by 100,000, which is 8.24 dollars. Crypto counts from the contract size, and commodities and indices count differently from one broker to the next; the What is a pip lesson works through each case.

Where the math lives

You do not need a spreadsheet or a third-party calculator for any of this. The position size calculator in the Trade Desk takes your account, risk percentage, stop distance and pair and returns the lot size and the pip value. The journal then tracks the pips and the profit of every trade against the goals you set, week by week.