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Worked examples: forex and crypto

Lesson 8 · about 10 min

Forex adds pips and lot sizes; crypto adds fractional units and perpetual contracts. The logic is unchanged: risk budget first, stop distance second, size last.

Forex: pips and lots

A pip is the standard unit of price movement. For most pairs it is 0.0001 (the fourth decimal place). For pairs quoted in Japanese yen it is 0.01 (the second decimal place).

Positions are measured in lots:

Lot Units of base currency Pip value on a USD-quoted pair (e.g. EUR/USD)
Standard 100,000 $10.00
Mini 10,000 $1.00
Micro 1,000 $0.10

The pip value in that table only holds when the quote currency (the second one) is USD. For other pairs you convert, which Example 2 shows.

The sizing formula becomes:

pip value you can afford = dollars at risk ÷ stop distance in pips

lots = affordable pip value ÷ pip value per lot

Example 1: EUR/USD. Account $5,000, risk 1% = $50.

  1. Entry 1.0850, stop 1.0820. Distance = 0.0030 = 30 pips.
  2. Affordable pip value = 50 ÷ 30 = $1.667 per pip.
  3. In micro lots ($0.10 per pip): 1.667 ÷ 0.10 = 16.67. Round down: 16 micro lots.
  4. Actual risk = 16 × $0.10 × 30 pips = $48.00.
  5. Notional position = 16,000 EUR × 1.0850 = $17,360, about 3.5 times the account. That is the leverage actually in use, whatever the broker offers.

Example 2: USD/JPY, a yen-quoted pair. Account $5,000, risk 1% = $50.

  1. Entry 150.20, stop 149.70. Distance = 0.50 = 50 pips (because a pip is 0.01 here).
  2. Pip value per micro lot in yen = 1,000 units × 0.01 = ¥10. Convert to dollars at the current rate: 10 ÷ 150.20 = $0.0666 per pip.
  3. Risk per micro lot = 50 pips × $0.0666 = $3.33.
  4. Micro lots = 50 ÷ 3.33 = 15.0. Take 15.
  5. Actual risk = 15 × $3.33 = $49.95.

If your broker's platform shows pip value directly, use it, but check it against this calculation once so you know it is right.

Example 3: the stop is wide. Account $2,000, risk 0.5% = $10. GBP/USD, stop 80 pips.

Affordable pip value = 10 ÷ 80 = $0.125 per pip. Micro lots = 0.125 ÷ 0.10 = 1.25. Round down: 1 micro lot, risking $8. If the broker's minimum were a mini lot ($1 per pip), the trade would risk $80, or 4% of the account, and the correct decision would be to skip it.

Key idea: In forex the lot size is the last thing you calculate, and the notional position it produces is the leverage you are really using. The number on the broker's marketing page is irrelevant.

Crypto: fractional units

Spot crypto is the easiest market to size because you can buy fractional units and there is no multiplier.

units = dollars at risk ÷ (entry − stop)

Example 4: BTC spot. Account $3,000, risk 1% = $30.

  1. Entry $60,000, stop $58,800. Distance = $1,200.
  2. Units = 30 ÷ 1,200 = 0.025 BTC.
  3. Position value = 0.025 × 60,000 = $1,500, half the account. That is fine at spot with no leverage, but check your single-position cap; at a 25% cap you would take 0.0125 BTC and risk $15, or widen nothing and accept the smaller trade.

Example 5: ETH spot. Account $8,000, risk 0.5% = $40.

  1. Entry $3,200, stop $3,040. Distance = $160.
  2. Units = 40 ÷ 160 = 0.25 ETH.
  3. Position value = 0.25 × 3,200 = $800, 10% of the account.
  4. Loss at stop = 0.25 × 160 = $40.

Perpetual futures

Perpetuals ("perps") let you take the same position with a fraction of the money posted as margin. The sizing does not change at all:

  • Decide dollars at risk from the account.
  • Compute units from the stop distance exactly as above.
  • Leverage then determines only how much margin is set aside, not how many units you hold.

Take Example 5 on a perp at 10× leverage. You still hold 0.25 ETH, still risk $40 at the stop. Margin posted = $800 ÷ 10 = $80. The other $7,920 sits in the account as a buffer. What changes is the liquidation price, which Module 4 covers; the risk plan is identical.

Where beginners go wrong is doing it backwards: "I have $800, at 10× that is $8,000, so I'll buy 2.5 ETH." That trade risks $400 at the same stop, or 5% of the account, and gets liquidated on a 10% move. Same market, same stop, ten times the risk.

Two crypto-specific costs to build in:

  1. Slippage on stops. Thin order books and fast moves mean a stop at $58,800 might fill at $58,600. Assume 0.2% to 0.5% extra on volatile coins and size a little smaller.
  2. Funding. Perps charge or pay a funding rate every few hours. On a multi-day hold at high leverage, funding can equal a meaningful fraction of your risk budget. Add it to the trade's cost.

Try it: Size a EUR/USD trade with a 45-pip stop on a $12,000 account at 1% risk (answer: 26 micro lots, $117 risk). Then size a BTC trade with a $900 stop distance on the same account and risk (answer: 0.1333 BTC). Confirm both on the position size calculator.

Recap

  • Forex: affordable pip value = risk ÷ stop in pips; lots = that ÷ pip value per lot; round down.
  • Yen-quoted pairs use 0.01 as a pip and need a currency conversion for pip value.
  • Crypto spot: units = risk ÷ (entry − stop); fractional units make exact sizing easy.
  • On perps, leverage changes the margin posted and the liquidation price, never the number of units you should hold.
  • Build slippage and funding into crypto risk; both quietly increase the real loss at the stop.

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

How a position size is worked outAccount size, risk per trade and stop distance feed into one box giving the number of shares.ACCOUNT SIZE$25,000your capitalRISK PER TRADE1%of the accountSTOP DISTANCE$0.50entry to stopPOSITION SIZE500 sharesrisk budget: $25,000 × 1% = $250position size: $250 ÷ $0.50 = 500 shares
Working out a position size. Three numbers decide how big a trade is: the account, the share of it put at risk, and the distance from entry to stop. One percent of $25,000 is a $250 budget, and a $0.50 stop divides into that 500 times.
Margin and leverageA small deposit controlling a much larger position, and the point at which losses trigger a margin call.Position you controlnotional value $100,000your margin deposit: $5,000$100,000 / $5,000 = 20:1 leverageYour deposit absorbs every dollar of loss$5,000$2,500$0Equity leftMARGIN CALLequity has fallen to $2,5000%1%2%2.5%3%4%5%How far the price moves against you
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
Slippage on a market orderA buy order clears four price levels, so the average price paid is worse than the price first quoted.Buy 1,000 shares at marketpricesell orders resting (bar length = size)20.04300 shares20.03200 shares20.01200 shares20.00300 sharesnothing resting at 20.02order sweeps up the bookaverage fill 20.02SLIPPAGE0.02 a share$20.00 in totalintended 20.00Each level fills at its own price; the average is what you really paid.
Slippage on a market order. You click at 20.00, but only 300 shares are resting there, so the rest of the order fills at 20.01, 20.03 and 20.04. The average price paid is 20.02, and that two-cent gap is slippage.

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