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# How to calculate forex risk?

Foreign exchange (forex) trading is a high-risk investment that can result in substantial losses. As such, it’s crucial to understand and calculate forex risk before entering into any trades. Forex risk refers to the potential loss that can occur due to changes in currency exchange rates. In this article, we’ll discuss how to calculate forex risk.

Before you can calculate forex risk, you need to determine your trade size. Your trade size refers to the amount of currency you’re trading. For example, if you’re trading EUR/USD, your trade size could be 10,000 EUR or 100,000 EUR. The trade size you choose will affect the amount of risk you’re taking on.

### Step 2: Determine Your Entry and Exit Points

Once you’ve determined your trade size, you need to determine your entry and exit points. Your entry point is the price at which you enter the trade, while your exit point is the price at which you exit the trade. Your entry and exit points will determine your profit or loss.

### Step 3: Determine Your Stop Loss

Your stop loss is the price at which you’ll exit the trade if the market moves against you. It’s a safety net that limits your losses. You should always use a stop loss in forex trading to manage your risk. Your stop loss should be placed at a level that you’re comfortable with, and it should be based on your trading strategy.

### Step 4: Calculate Your Position Size

To calculate your position size, you need to take into account your account balance, your risk percentage, and your stop loss. The formula for calculating your position size is as follows:

### Position size = (account balance x risk percentage) / (stop loss x pip value)

For example, if your account balance is \$10,000, your risk percentage is 2%, your stop loss is 50 pips, and the pip value is \$10, your position size would be:

### Step 5: Calculate Your Risk

Now that you’ve determined your position size, you can calculate your risk. Your risk is the amount of money you stand to lose if your trade hits your stop loss. To calculate your risk, you need to multiply your position size by your stop loss, and then multiply that by the pip value.

For example, if your position size is 4 lots, your stop loss is 50 pips, and the pip value is \$10, your risk would be:

### Step 6: Determine Your Reward-to-Risk Ratio

Your reward-to-risk ratio is the ratio of your potential profit to your potential loss. It’s important to have a good reward-to-risk ratio in forex trading to ensure that you’re making more money than you’re risking. To calculate your reward-to-risk ratio, you need to divide your potential profit by your potential loss.

For example, if your potential profit is \$4,000 and your potential loss is \$2,000, your reward-to-risk ratio would be: