Let’s suppose there are two trader—Bill and Jane. Both have $10,000 in their trading account. Both take the same two trades on the EUR/USD (no rollover interest to be credited/debited, and spreads are included in the actual trade upon purchase whether profit or loss):
Let’s suppose that the EUR/USD price is 1.1340 (dollar per pip value will remain consistent within a large range of this price).
- Trade 1 aims to achieve a profit of 60 pips with a stop loss of 30 pips. The trade gets stopped out at a loss of -30 pips
- Trade 2 aims to achieve a profit of 30 pips with a stop loss of 10 pips. The trade profits buy 30 pips.
The trades amount to a profit of zero (it loses -30 pips on the first trade and + 30 pips on the second trade). Yet, while Bill (trader 1) makes zero profit, Jane ends up making $420 (-$180 on the first trade and +$600 on the second trade). What happened?
Answer: Bill traded a standard lot for both trades which means he made $300 on the first trade and lost $300 on the second for a total of $0 profit.
Jane on the other hand risked 2% of the total account requiring 6 mini lots for the first trade and two standard lots for the second trade. The risk of 2% = $200. If the stop loss was 30 pips for the first trade, then 200/30 = 6.66 risk per pip which can be rounded down to $6 per pip which is six mini lots as ((.0001/1.1340)*60,000)*1.1340 = 5.994324 or rounded up to $6.00 for a loss of -$180 (6*-30). For trade two, $200/10 pips = $20 risk per pip which can only be achieved with two standard lots as ((.0030/1.1340)*200,000)*1.1340 = 599.9994 rounded up to $600.