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Calculating maximum position size based on stop-loss and stop-out level
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[QUOTE="Enivid, post: 185941, member: 1"] Unfortunately, that formula is incorrect. If you take a 3 lot USD/JPY position with $1,000 balance, 1:500 leverage, 50% stop-out level, and 105.331 current USD/JPY ask, you will get stopped out before you reach your 40 pips stop loss. Because with 3 lots, 40 pips loss on USD/JPY is $1,139.27 - you would have to get into negative equity on your $1,000 account balance. The correct formula to determine the maximum position size for USD/JPY based on initial balance, SL, stop-out level, leverage, and the USD/JPY Ask rate: [CODE]Size = Balance * Leverage / (100,000 * StopOut + Pip_Value * SL * Leverage)[/CODE] In your case: [CODE]Size = $1,000 * 500 / (100,000 * 0.5 + $9.49 * 40 * 500) = 500,000 / (50,000 + 189,800) = 2.085 lots[/CODE] Here is how to arrive at this formula: [CODE]StopOut = Equity / Used_Margin Equity = Balance - Loss Loss = Size * SL * Pip_Value Pip_Value = 1,000 / USDJPY_Ask = 1,000 / 105.331 = $9.49[/CODE] Please note, that the USD/JPY Ask rate to use here is the one that will be at the time of the position closing (i.e., your stop-loss level). [CODE]SL = 40 pips Used_Margin = Size * 100,000 / Leverage StopOut = 50% = 0.5 Leverage = 500 Balance = $1,000[/CODE] Please let me know if you still need help figuring this out. [/QUOTE]
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