Size a Cross Pair Trade in a Dollar Account

[Fairman]

Size a Cross Pair Trade in a Dollar Account

Scenario: a 6,000-dollar account, 1 percent risk, trading EUR/GBP with a 15-pip stop. GBP/USD is at 1.2500.

Work it out. Risk amount: 60 dollars. EUR/GBP is quoted in pounds, so one pip on a standard lot is 10 pounds. To convert pounds to dollars, multiply by GBP/USD: 10 times 1.25 is 12.50 dollars per pip.

Risk per standard lot at 15 pips: 15 times 12.50 is 187.50 dollars. Lot size: 60 divided by 187.50 is 0.32 lots.

Answer: 0.32 lots.

Notice the direction of the conversion. When the quote currency is the pound, you multiply by the price of a pound in dollars. When you used USD/CHF in the earlier drill, the quote currency was the franc, and you divided by the price of a dollar in francs. The principle is the same: convert the quote currency to dollars. Whether you multiply or divide depends on how the conversion pair is quoted.

A quick sanity check: the pound is worth more than the dollar, so a pip in pounds is worth more than a pip in dollars. The result of 12.50 is above 10, as expected.

Takeaway: for cross pairs, find the quote currency's value in your account currency before sizing.

Practical step: compute the pip value of one standard lot of EUR/JPY and GBP/CHF in dollars at current rates.