A lot of Forex traders focus on having a stop-loss plan to limit losses, but they often overlook how much they're investing in each trade. This oversight can seriously impact a trader's account, especially when using a significant amount of borrowed money (leverage), all because of choosing the wrong investment amount for each trade.

Given the higher leveraging and price fluctuation risks in the Forex Market, traders are strongly advised to calculate an appropriate position size for each trade to avoid wiping out their account with a single trade.

Here is the basic information that you should determine before delving into the details of how to calculate position sizes:

i.   Currency pair and the price that you plan to trade (e.g. USD/JPY, $149)

ii.  Stop-loss point (e.g. 20 pips)

iii. Risk percentage (refer to the next section of this blog)

1. Determine the percentage of risks per trade

So how much should you risk per trade? The rule of thumb is to limit your risk to a maximum of 2% risk per trade. Here’s a table illustrating the difference between risking 2% and 10% of your account for each trade.

 The table above clearly illustrates the impact on the account balance assuming you loss in all 10 trades. If you risk 10% of your trade each time and experience losses in all 10 trades, your account balance would dwindle to $3,488, resulting in a loss of over 65% of your initial capital. Conversely, by only risking 2% of your account in each trade, your account balance would still be $8,171, reflecting a loss of less than 20% of your initial capital.

While nobody anticipates a losing streak in all 10 trades, this serves to emphasize the critical importance of minimizing risk to avoid depleting your account in just a few trades.

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