Working out position size

A pip is the smallest standard move in a currency pair. For USD/INR, one pip is a move of 0.0001 in the exchange rate. If the rate goes from 83.2500 to 83.2501, that is one pip. Pip value is what one pip is worth in rupees for a given position size. The lesson already used ₹10 per pip for a standard lot. That figure comes from the contract size, which is the number of units in one standard lot. For USD/INR, one standard lot is 100,000 units of the base currency, which is the US dollar. One pip on 100,000 units is 100,000 multiplied by 0.0001, which equals 10 units of the quote currency. The quote currency is INR, so one pip is worth ₹10 for one standard lot. This is why the pip value is in rupees and not in dollars.

Pip value changes when the position size changes. It is proportional to the lot size. If one standard lot gives ₹10 per pip, then 0.10 lots gives one tenth of that, which is ₹1 per pip. 0.50 lots gives ₹5 per pip. You do not need to recalculate from the contract size each time. You can scale the standard lot pip value by the lot size. The formula is pip value for your size equals ₹10 multiplied by the number of standard lots. For example, 0.25 lots gives ₹10 multiplied by 0.25, which is ₹2.50 per pip. This scaling works for any size as long as the contract size is 100,000 units. Some brokers use different contract sizes for USD/INR, so the standard lot pip value may not be ₹10. Always check the contract specifications your broker provides.

Pip value also depends on the exchange rate when the quote currency is not your account currency. Here the account is in rupees and the quote currency is rupees, so there is no conversion. If you traded a pair like EUR/USD, the pip value would be in US dollars and you would need to convert it to rupees using the current USD/INR rate. That conversion adds a step and the pip value would change as the rate moves. For USD/INR, the pip value in rupees is fixed for a given lot size. This makes the position size calculation simpler. The lesson uses ₹10 per pip for a standard lot because that is the figure for this pair and this contract size. If your broker quotes a different pip value, use that number instead.

You place a stop at a price level on the chart, not at a number of pips. The stop distance in pips is the difference between your entry price and your stop price, measured in pips. For USD/INR, one pip is 0.0001. If you enter at 83.2500 and place your stop at 83.2460, the difference is 0.0040. Divide that by 0.0001 and you get 40 pips. That is the stop distance. The lesson already used 40 pips in an example. The calculation is the same whether the stop is above or below the entry. You take the absolute difference, because distance is positive. The direction of the trade does not change the pip distance.

Some traders use the term pipette or fractional pip. A pipette is one tenth of a pip. If your platform shows five decimal places for USD/INR, the fifth decimal is a pipette. For example, 83.25005 is half a pip above 83.2500. When you count pips, ignore the pipette digit or convert it. If your stop is 40.5 pips away, you can round to 40 or 41 pips for the position size calculation. Rounding changes the risk slightly. Rounding the stop distance down makes the position size larger and increases risk. Rounding it up makes the position size smaller and reduces risk. Choose a convention and stick to it. The lesson uses whole pips in its examples.

The stop distance must be decided before you calculate position size. The lesson already said that. What it leaves out is how to choose the distance. The distance comes from the chart, not from the lot size. You look at recent price swings and place the stop beyond a level where the market would prove your trade idea wrong. That level might be a recent high or low, or a round number. The distance is whatever the chart gives. If the chart gives a distance that leads to a position size below your broker's minimum, you cannot take the trade with that stop. You either skip the trade or accept a different stop, which changes the risk. You do not widen the stop to make the position size fit. That would increase the money at risk beyond what you planned.

The rupee risk is the amount you are willing to lose if the stop is hit. It is not the same as the money in your account. It is a number you choose before the trade. The lesson used ₹50 and ₹30 in its examples. How do you choose that number? A common approach is to risk a small fixed percentage of your account balance on each trade. For example, if your account balance is ₹10,000 and you risk 0.5 percent, the rupee risk is ₹10,000 multiplied by 0.005, which equals ₹50. That matches the first example. If your balance is ₹6,000 and you risk 0.5 percent, the rupee risk is ₹30. That matches the second example. The percentage is a personal choice. It is not a rule from SEBI or from any broker. Many traders use between 0.5 percent and 2 percent, but that varies. The important part is that the number is small enough that a series of losses does not damage your account.

The rupee risk must include costs if you want the figure to be accurate. Spreads and commissions reduce your profit or increase your loss. The lesson already mentioned that brokers differ in spreads and commissions. What it leaves out is how to account for them in the risk number. If your broker charges a commission of ₹20 per lot round trip and you trade 0.10 lots, the commission is ₹2. If the spread is 2 pips and one pip is worth ₹1 for 0.10 lots, the spread cost is ₹2. So the total cost is ₹4. If your stop is 20 pips away and you risk ₹20 from price movement, your total loss could be ₹24. To keep the total loss at ₹20, you would reduce the position size or the stop distance. The lesson's method uses the price movement risk, not the total cost. You can adjust by using a smaller rupee risk number that leaves room for costs.

The rupee risk is fixed in money, not in lots. This is the key difference from picking a lot size first. When you fix the rupee risk, the position size becomes the output of the calculation. If the stop distance is large, the position size is small. If the stop distance is small, the position size is large. The money at risk stays the same. This is why the order matters: risk in money, divided by stop distance, divided by pip value. The result is a lot size that may be a fraction. Brokers allow different step sizes, such as 0.01 lots. If your calculated size is 0.125 lots, you may need to round to 0.12 or 0.13. Rounding down reduces risk; rounding up increases it. The lesson already showed that. What it leaves out is that you should round down if you want to stay within your planned risk. Rounding up breaks the plan.