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I'm trying to build an automated forex trading system and I'm trying to understand how to calculate the number of units I should specify for each trade in different scenarios. Say for example I have an account with a broker in USD and I've deposited $1000. Ignoring leverage, I'd like to allocate my entire balance in each of the following scenarios. In each scenario I've tried to explain how I think the calculation should be performed..

Going Long

Long USD/JPY

Buy USD, sell JPY
USD is the base currency so units (USD) = 1000

Long EUR/USD

Buy EUR, sell USD
units (EUR) = 1000 / [EUR/USD].Ask

Long EUR/JPY

Buy euros, sell yen
How many yen can we get with 1000 dollars?
Buy yen with dollars
Instrument = USD/JPY
USD (selling) is the base currency so multiply by the bid
So yen = 1000 * [USD/JPY].Bid
units (EUR) = yen * [EUR/JPY].Ask

Update:

units (EUR) = yen / [EUR/JPY].Ask

Long GBP/NZD

Buy GBP, sell NZD
How many NZD can we get with 1000 USD
Instrument = NZD/USD
USD (selling) is the quote currency so divide by the ask
So NZD = 1000 / [NZD/USD].Ask
units (GBP) = NZD / [GBP/NZD].Ask

Going Short

Short USD/JPY

Sell dollars for yen
units (USD) = 1000

Short EUR/USD

Sell euros, buy dollars
units (EUR) = 1000 * [EUR/USD].Ask

Update:

units (EUR) = 1000 / [EUR/USD].Bid

Short EUR/JPY

Sell euros, buy yen
How many euros can I buy with 1000 dollars?
Instrument EUR/USD
USD (selling) is the quote currency so divide by the ask
units (EUR) = 1000 / [EUR/USD].Ask

Short CHF/JPY

Sell CHF and hold JPY
How much CHF can we buy with 1000 USD?
Instrument = USD/CHF
USD (selling) is the base currency to multiply by the bid
units (CHF) = 1000 * [USD/CHF].Bid

So the question is - have I got the logic right in each scenario?

[ This is a follow up question to my previous question - Calculating units in a cross currency short trade ]

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  • $\begingroup$ I find it incredibly difficult to get my head around this stuff.. I'd love to know if there is an easier way to remember whether to use the bid or ask price and whether to multiply or divide. $\endgroup$ – Tom Hunter May 13 '15 at 3:02
  • $\begingroup$ In your EUR/USD example ask your broker to quote you USD/EUR so that you don't have to do the calculation. You can follow the position in USD/EUR. This is commonplace because brokers have clients who have the exact same issue as you and want to, for example, buy or sell $1000 of EUR/USD. $\endgroup$ – rupweb May 13 '15 at 9:42
  • $\begingroup$ Have a look at my primer on this at webstersystems.co.uk/fxmm.htm#spot fx $\endgroup$ – rupweb May 13 '15 at 9:50
  • $\begingroup$ Hi @rupweb, it doesn't look like OANDA provides this.. i.imgur.com/MaL84u1.png and i.imgur.com/KlPQ3V8.png $\endgroup$ – Tom Hunter May 13 '15 at 11:21
  • $\begingroup$ crazy... how do they cope with people who have USD and want to buy EUR? Then you have to use the inverse rate 1/EURUSD to find out the USDEUR rate. Then you can multiply your size by the rate and get the counter size. $\endgroup$ – rupweb May 13 '15 at 14:18
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What you're trying to do is express all your positions in terms of a risk currency. Then you can track your PnL in only one currency. You need to express all this in an Excel spread sheet and include some rates, a bit like the screenshot here.

enter image description here

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A currency quote (EURUSD 1.1, for example) put into an equation with units is 1 EUR / 1 USD = 1.1 or 1 EUR = 1.1 USD. Units or volume of a currency pair is expressed in terms of the base currency (EUR in the example), which means bids are buying and asks are selling the base currency.

I glanced a few examples and it looks like you're right, but here's one in equation form:

Buy GBP, sell NZD
We need NZD to sell. Must buy some using NZD/USD.
We are buying NZD/USD from people selling it, so we get the "asking" price
NZD/USD = x (the ask price)
1 NZD / x = 1 USD (re-arrange)
1000/x NZD = 1000 USD (multiply by 1000)
GBP/NZD = y (also buying GBP, so use ask)
(1000/x)/y GBP = (1000/x) NZD (multiply both sides by amount of NZD we can sell)
thus you can long (1000/x)/y units of GBP/NZD with 1000 USD.
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