Volume is one of the key factors in trading any instrument, including forex. A large selling volume without the same volume demand can lead to a decrease in the price of the instrument. and vice versa This means that large trading volumes have the potential to earn large profits and losses.
Therefore, it is not uncommon for traders or investors to confuse which order volume is suitable for trading over a certain period of time. trading time Sure. Here’s how to determine the order volume that fits your trading style:
How to determine the order quantity
1. Fixed size
The first method is that you trade currencies with fixed volume at each trading session. For example, let’s say you sell $100 in 10 sells when your equity value is $1,000.
The advantage of this method is that it is easy to understand and therefore suitable for beginners to apply. There is also a possibility spread What you have to pay remains the same. So it’s easy to calculate.
The downside is that you can’t make the most profit because you can’t sell or buy multiple currencies when their prices are high or low.
2. It depends on the price.
The second way to determine the order volume depends on the price of the instrument. For example, the value of your margin equity is IDR 1,400,000 and the USD to Rupiah exchange rate is 1 USD, which is 14,000. IDR 1,400,000 and assuming free transaction fee, you will receive $100 or 1 nano lot.
To use this volume trading strategy You must know in advance how much money will be spent on buying one currency and how much will be spent on buying another currency or instrument. Because diversification is important in trading.
3. According to the percentage of capital
besides the price You can also set the order quantity with the total amount you have. The percentage of the larger order volume compared to the total. The greater the trading risk you have to bear, so this trading volume ratio should not exceed 1%-2% of the total equity. so when you lose You will not lose all the equity you have.
The formula for calculating the order quantity using this method is
Order Volume = Equity * Risk (%) / Amount to Trade * Leverage
For example, you have all interests (including Floating Profit) of $1,000 and your risk ratio is 2% if you want to trade 10,000 lots and the broker offers 1:100 leverage. The maximum total trading volume you can trade is:
Order volume = 1000* 2% / 10,000 * 100 = 0.02 lots
The advantages of this method are, first of all, The volume you trade can increase with the increase in the total value you have. Secondly, this approach is suitable for traders with minimum capital. But this method is not calculated to any degree. stop loss must be installed
4. Set the order volume with stop loss.
The formula is:
Order volume = Equity * Risk (%) / (Stop loss in pips * Number of transactions required in pips)
To use this method You have to remember that pip is a 4 digit number after the comma. Thus, when the price changes by 1 pip for a standard contract (100,000 units), the value is $10 from 0.0001 x 100,000. So, if you want to trade 1,000 lots of currency, the pip value is 0.01 (0.0001 x 1000).
Here are some steps for determining order quantities using this method:
- set risk percentage Again, a percentage risk higher than 2% is not recommended.
- Set the stop loss level based on the number of pips. For example, you want to buy EUR/USD at the price of 1 EUR equal to 1.0600 USD and set the stop loss level at the EUR/USD level 1 EUR equals 1.0620 USD. You are 20 pips ( 1.0620 USD- 1.0600 USD).
- Enter the results of points 1 and 2 into the above formula.
- You have a total equity of $1,000.
- Risk percentage 2%
- The exchange rate of 1 EUR is 1.0600 USD.
- Mtop loss set at 1.0620 USD level
- You want to trade 100,000 units or standard lots in pips. This is equivalent to 10 USD (0.0001 x 100,000).
So the total order volume you can trade to break even is:
Order volume = 1000 * 2% / (20* 10) / 100= 20/200=0.1 standard lot.
5. Using the Kelly Criteria
The Kelly Criteria is a mathematical formula formulated by John L. Kelly Jr in 1956 shortly after publication. This theory is widely used to determine trading volume and bet volume in gambling.
In this approach, you will set the trading volume based on the past probabilities of winning and losing that you previously won.
The formula for Kelly’s criteria is:
K = px B (1 – p) / B
K = Total trading volume on Kelly criteria.
P = percentage of probability of winning
1 – p = percentage of loss This variable is often used instead of q.
B = The reward/risk ratio that the trader is willing to sacrifice. For example, if the trader is willing to sacrifice all his possible profits, the value of B will be 1/1.
The trader wants to start trading. He is willing to sacrifice all his profits for the trade so that the value of B is 1/1. If in the previous trade there was only a 65% win rate, then what is the trading volume that can be wagered?
K = px B (1 – p) / B
K= 0.65 x 1 -0.35)/1
K =(0.65 x 1- 0.35)/1
K = 0.65-0.35/1
K= 0.30 or 30% of the total equity So if your total equity is $1000, you should trade with volume equivalent to $300.
In this approach, it is not recommended that traders start trading if the value of B=p/q or when the total risk/reward ratio is equal to the historical percentage of previously earned wins and losses.
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