Forex Position Calculator: Balancing Risks and Gains

Jul 12 • Forex Calculator • 2301 Views • 1 Comment on Forex Position Calculator: Balancing Risks and Gains

Getting rich in the quickest manner possible is one of the temptations that any forex market trader finds truly difficult to resist. This is the reason why there is a constant influx of new traders in the foreign exchange market. However, many realize the fact that forex trading is not really the easy way to rake millions of dollars instantly. In order to survive, one has to be equipped with knowledge and strategies, as well as tools like the position calculator in order to survive the world of market trading.

Forex trading is actually mostly about proper positioning. By now, you might be fully aware of the definition of risk in the trading context and what impact it can have. The degree of triumph or disaster that will be experienced by any forex market trader depends on how he or she manages the risk. This answers the following questions:

(1)   How much are you willing to lose in a certain deal?

(2)   How much are you aiming to gain from an investment?

(3)   How will you reconcile you answers for question number 1 and number 2?

To illustrate, let’s say that a certain investor is willing to lose as much as US $ 1,000 for a single investment. But that investor also aims to earn at least US $ 1,000. Calculating for this manually is quite difficult. This is where the forex position calculator comes in. Years back, this calculator can be found in any trading platform. But now, it has become more common. Anyone can try using one because it can be searched via Google.

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In the world of foreign exchange trading, one must select a position size right away in accordance to what’s required. Here’s the rule of thumb: one’s preferred setup for trading should be the determinant of the position size. The other way around is not true. That’s why, whenever you are using your position calculator, you have to be ready with the needed valuable right away. Determining trading setup from the position size is both foolish and taxing – therefore, this kind of reverse engineering is not worth the try.

If you are curious about how the position calculator gets the final values, take a closer look at the discussion of the mathematical formula that it uses:

In the above-given mathematical formula, X stands for the position size and the units used is the currency that is desired. R is known as the percentage of the investment or account that you can afford to risk. B, on the other hand, is the total balance of the investment. Meanwhile, T is the long or short indicator – if the value is -1, then it corresponds to a position that is short. On the other hand, a value of +1 is considered as the long position. P1 corresponds to the price of the entry. P2, on the other hand is the opposite of P1.

Gaining a deeper understanding on the formula being used by the position calculator, it will be easier for any trader to master the craft of reconciling the allowable risk level placed side by side with the desired level of gains.

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