You'll often hear me talk about position value as being something distinct from position size.

The difference is position size is often measured in contracts, which makes it a very un-intuitive value to use in explanations.

If I talk about a position size of 100 contracts, or 1 lot in Forex, that tells you nothing about what the position is actually worth without going and getting more information.

You can't do maths on a contract number without some form of conversion factor to give it value in a currency.

**That's where Position Value comes in.**

Position Value is what a position is actually worth.

In Forex for example, a position might have a size of 1 Lot which just means 100,000 units of the base currency (first in the pair).

So 1 Lot of EURUSD has a position size of 1 Lot or 100,000 units - 100,000 EUR.

But for any calculations to be done on it, it needs to have a value.

We can convert that 100,000 EUR position size to USD or any other currency to get the position value, as long as we know the price of the Euro against that currency.

So if EURUSD is trading at 1.07971, meaning each USD buys 1.107971 Euro, our 1 Lot position size has a position value in USD of $92,617.46.

We can do the same with cryptocurrencies or any asset.

On OKX, 1 contract of BTCUSD is worth 0.01 BTC.

So if we enter a trade with a position size of 10 contracts, we have a position size of 0.1 BTC.

We can give this a position value by converting to a currency, let's stick with USD.

If BTC is currently trading at $26,085, our position size of 0.1 BTC has a position value of $2,608.5 USD.

**Why is Position Value Important?**

Position value is what is actually used to determine position size.

If you have a $10,000 account, and want to risk 1% of it, all Position Sizes will be calculated so that if your Stop Loss is to be hit, it will lead to a $100 Loss.

So let's say you decide to take a trade with a 4% Stop Loss.

We know that a 4% Loss of your position value needs to correspond to a $100 loss (1% of your account).

So we can calculate your position value by using the formula

4% x Position Value = $100

Position Value = $100 / 4%

Position Value = $2,500

This way, if your 4% Stop Loss is hit, you'll lose 4% of $2,500 which is a $100 loss (1% of your $10,000 account).

We can then convert this to a position size.

Let's say BTC is trading at $25,000.

We know we need a $2,500 Position value, which is equal to 0.1 BTC.

We can then use 0.1 BTC or 10 contracts (again due to OKX's 0.01 BTC contract size) as your position size.

## Comments

0 comments

Please sign in to leave a comment.