Forex trading scenarios - calculating units

External question — Quantitative Finance Stack Exchange Author: Tom Hunter Original post: https://quant.stackexchange.com/questions/17770 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. 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 ]

External answer — Quantitative Finance Stack Exchange Author: Bryan Walker Original post: https://quant.stackexchange.com/a/17773 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. 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.

External answer — Quantitative Finance Stack Exchange Author: rupweb Original post: https://quant.stackexchange.com/a/17780 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. 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.