Let’s say you want to buy EUR/GBP and your broker account is denominated in USD.

In this trade, you only want to risk USD $100. But you’re not trading US dollar, you are trading euros and pounds. How do you calculate your position size?

In this lesson, we’ll teach you how to determine your position size if you are trading currency pairs that aren’t in your account denomination.

Ned, who we introduced in the previous lesson, is back in the U.S. Today, he decides to trade EUR/GBP with a 200 pip stop.

To find the correct position size, we need to find the value of Ned’s risk in British Pounds.

Remember,** the value of a currency pair is in the counter currency.**

Okay, let’s straighten things out here. He’s back trading with his U.S. broker selling EUR/GBP and he only wants to risk **1% of his USD 5,000 account, or USD 50.**

To find the correct forex position size in this situation, we need the GBP/USD exchange rate.

Let’s use 1.7500 and because his account is in USD, we need to invert that exchange rate to find the proper amount in British Pounds.

USD 50 * (GBP 1/USD 1.7500) = **GBP 28.57**

Now, we just finish the rest the same way as the other examples.

Divide by the stop loss in pips:

(GBP 28.57)/(200 pips) = **GBP 0.14 per pip**

And finally, multiply by the known unit-to-pip value ratio:

(GBP 0.14 per pip) * [(10k units of EUR/GBP)/(GBP 1 per pip)] = approximately 1,429 units of EUR/GBP

Ned can sell no more than **1,429 units** of EUR/GBP to stay within his pre-determined risk levels.

Ned decides to go snowboarding in Switzerland, and in between a couple of double black diamond runs, he opens up his trading account on his super spy phone with a local forex broker.

He sees a great setup on USD/JPY, and he has decided that he will get out of the trade if it goes beyond a major resistance level–about 100 pips against him.

Ned will only risk the usual **1% of his CHF 5,000 account or CHF 50.**

First, we need to find the value of CHF 50 in Japanese yen, and since the account is the same denomination as the conversion pair’s base currency, all we have to do is multiply the amount risked by CHF/JPY exchange rate (85.00):

CHF 50 * (JPY 85.00/ CHF 1) = **JPY 4,250**

Now, we just finish the rest the same way as the other examples.

Divide by the stop loss in pips:

JPY 4,250/100 pips = **JPY 42.50 per pip**

And finally, multiply by a known unit-to-pip value ratio:

JPY 42.50 per pip * [(100 units of USD/JPY)/(JPY 1 per pip)] = approximately 4,250 units of USD/JPY

Shabam! There you have it!

Ned can trade no more than **4,250 units of USD/JPY** to keep his loss at CHF 50 or less.

Lesson 1: What Is Risk Management? Lesson 2: How Much Trading Capital Do You Need For Forex Trading? Lesson 3: Drawdown and Maximum Drawdown Explained Lesson 4: Never Risk More Than 2% Per Trade Lesson 5: Reward-to-Risk Ratio Lesson 6: Study Your Losses to Realize Gains Lesson 7: Summary: Risk Management

Lesson 8: Ignoring Leverage: Why Most New Forex Traders Fail Lesson 9: Leverage and Margin Explained Lesson 10: Margin Call Explained Lesson 11: Be Careful Trading On Margin Lesson 12: See How Leverage Can Quickly Wipe Out Your Account Lesson 13: Low Leverage Allows New Forex Traders To Survive Lesson 14: How Leverage Affects Transaction Costs Lesson 15: Never Underestimate Leverage

Lesson 20: What is a Stop Loss? Lesson 21: How To Set A Stop Loss Based On A Percentage Of Your Account Lesson 22: How To Set A Stop Loss Based On Support And Resistance From Charts Lesson 23: How To Set A Stop Loss Based On Price Volatility Lesson 24: How To Set A Stop Loss Based On A Time Limit Lesson 25: 4 Big Mistakes Traders Make When Setting Stops Lesson 26: 3 Rules To Follow When Using Stop Loss Orders Lesson 27: Summary: Setting Stops

Lesson 33: Currency Correlation Explained Lesson 34: How To Read Currency Correlation Tables Lesson 35: Are You Doubling Your Risk Without Knowing It? Lesson 36 : 5 Reasons Why Factoring In Currency Correlations Help You Trade Better Lesson 37: Be Careful! Currency Correlations Change! Lesson 38: How To Calculate Currency Correlations With Excel Lesson 39: Summary: Currency Correlations