## Questions about lot size and money management

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NeGem
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### Questions about lot size and money management

Hi, I am new to trading. I have a question about lot size and money management.
If I have an initial capital of \$500 and playing with a leverage of 20:1, this would mean that I am able to control a maximum of \$10,000 while trading. Let say that I want to risk 4% of my capital for each trade and have a stop loss of 20 pips. How do I determine the lot size

For example:
I am planning to trade the EUR/JPY with an initial capital \$500 with a leverage of 20:1. If I am risking 4% of my capital, am I risking \$400 (\$10,000 x 4%) or \$20 (\$500 x 4%)? If I am risking \$400 and I want to have a stop loss of 20 pips, does that mean each pip would represent \$20? Also, if I am risking \$400, would't I be risking 80% of my initial capital (\$400/\$500)?

Thanks

ilovetro
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I would like to share my limited knowledge.

If you wish to risk 4% of your capital, the amount that you would risk is \$500 x 4% = \$20.

To calculate the lot size you need to know the pip value of EUR/JPY. I presume you are trading micro lot account, then each pip = \$0.1041 (in USD) (you can find out pip value her http://www.goforex.net/pip-calculator.htm)

Here's the equation to calculate lot size:

Lot size = Risk amount / (Stop Loss x Pip Value) = \$20 / (20 x \$0.1041) = 9.606 = 9.6 micro lot

I think leverage have to do with margin requirement. Can someone shed some light on this?

john225
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ilovetro
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Excellent link, john225. it automates the whole process

NeGem
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Thanks ilovetro and John225! It is indeed a very good site