CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81.76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

74% of retail investor accounts lose money when trading CFDs with this provider.
81.76% of retail investor accounts lose money when trading CFDs with this provider.

Losing capital slowly over a long period of time is usually the result of a poor trading system or excessive trading costs. Losing capital quickly results from risking too much capital on individual trades or poor discipline.

Risk management should, therefore, be a part of every stage of the trading system, including system or strategy design, position sizing and execution.

## Calculating Position Size and Exposure

It’s impossible to manage risk if you do not know how big a position is or how much you are risking. Being able to calculate the exposure and risk for each trade is, therefore, the first thing to do before opening a position. While this may seem obvious, many people who are new to trading don’t know how big their trades actually are.

If you are trading shares, calculating the size of a position is very straightforward:

Position size in USD = Share Price in USD x Number of shares

For both Forex and CFDs, if you know the tick value, you can calculate the position size from that. Let’s take a look at CFDs first.

## Position Size for CFD Trading

Let’s say you buy 1 CFD on the ASX 200 at an index level of 5,750 and one point is equal to 1 AUD. This means you will make 1 AUD for every point the index rises and lose 1 AUD for every point the index falls.

In this case, if the index rose 100%, the profit would be AUD 5,750, so 100% of the position is AUD 5,750 which is the total position size.

If the one point was worth AUD 10, then the position size for one CFD would be AUD 57,500. If one point was worth AUD 25, then the exposure for one CFD would be 5,750 x 25, or AUD 143,750.

## Position Size for Forex Trading

Calculating your exposure for a Forex trade is similar. The tick size is known as a pip, and for most currency pairs it is the fourth number after the decimal point. The exception is the Japanese Yen (JPY) for which the pip value is the second number after the decimal point.

If the GBPUSD pair is trading at 1.2821 and the price rises to 1.2822, it has risen by one pip. But how much is a pip worth, and what is the total value of a position?