Every now and then I borrow the power of ChatGPT, Episode 176: 【How to Calculate the Minimum Necessary Funds and Lot Sizes】

FX Auto Trading, the EA developer Reiwa’s Double-E is.

Since last year, I’ve been writing this series aiming for daily posts.

I think I’ve managed to continue for about a year and a half now!

If you read what I’ve written so far,

I firmly believe you’ll get closer to better EA management.

And, since I’d like to take a short break,

I’ll continue posting this time with the help of ChatGPT.

From time to time, I will post irregularly, like before.

Method to calculate the minimum required capital and lots

Hello everyone.

I am Reiwa’s Double-E, the FX auto-trading and EA developer.

This time, on “risk management essential for EA operation,”

we will explain how to calculate the minimum required capital and the ratio of lots.

Basic formula for risk calculation

The basic of risk calculation is simple.

Required capital = Maximum drawdown + Required margin

（Note: the calculation should use the same lot size for both terms）

If you understand this, you can balance funds and lots for any EA.

Prerequisites

This time, explained under the following prerequisites.

Currency pair: USD/JPY

Maximum one-sided position: 1

Rate: 1 USD = 150 JPY

Leverage: 25x

Lot size: 0.1 lot (10,000 currency units)

Maximum drawdown: 40,000 JPY

Calculation formula for required margin

Required margin can be calculated with the following formula.

Rate (yen) × Lot size (currency units) × Maximum positions ÷ Leverage

Plugging in the prerequisites:

150 yen × 10,000 currencies × 1 position ÷ 25x = 60,000 yen

Therefore, the required margin in this case is 60,000 yen.

If the EA has variable lots (like grid or martingale), sum the lots of all positions to calculate.

Minimum required capital

Next, add the maximum drawdown.

Maximum drawdown (40,000) + Required margin (60,000) = 100,000 / per 0.1 lot

In other words, backtests show that 100,000 yen is needed for operating 0.1 lot.

Other currency pairs

For non-yen pairs (e.g., EUR/USD), use the base currency on the left and use the cross-rate of that currency with the yen to perform the same calculation.

Example: For EUR/USD → use EUR/JPY rate.

Summary

EA risk management is calculated as “maximum drawdown + required margin”

Minimal required capital becomes visible from backtesting data

If you don’t unnecessarily raise the lot size, the EA can perform to its full potentialFrom Reiwa’s Double-E“In the world of EA operation, whether you know this calculation is the dividing line between ‘collapse or not’!”----------------------------------■ About the calculation method for EA risk management https://www.gogojungle.co.jp/finance/navi/articles/64703----------------------------------━━━━━━━━━━━━━━━【From starting EA to intermediate level - flow summary】First, master the installation of the EA.--------------------------------------------------------------------MT4 EA (Expert Advisor) and Indicator installation steps https://www.gogojungle.co.jp/post/1/8212--------------------------------------------------------------------※GoGoJungle video version※Even at the start, many people struggle to understand everything at once.I also stumbled many times at first, so take your time and you’ll be fine!If you have any questions, use the “Inquiry form” to contact us!----------------------------------■ GoGoJungle “Inquiry form”https://www.gogojungle.co.jp/inquiry----------------------------------【How to choose an EA】Now that you feel you can operate an EA,you might think, “I don’t know which EA will win… I don’t want to lose…”.So, Reiwa’s Double-E aims to make it possible to gauge some pros and cons throughthe following articles in a series.--------------------------------■ How to find a winning EA from backtests https://www.gogojungle.co.jp/finance/navi/series/1714----------------------------------Forward testing is important, butbacktests underpin it.Usually, the backtest period is longer than the forward period,and whether you won by chance in forward testing can be inferred by mastering backtest evaluation methods.【How should you manage EA risk!?】And, no matter how excellent an EA you obtain,if you neglect risk management, FX will collapse.Therefore for EAs, how should risk management be done!?The following articles answer that.----------------------------------■ About the calculation method for EA risk management https://www.gogojungle.co.jp/finance/navi/articles/64703----------------------------------【EA operation mindset is also important】And,to sustain EA operation long-term, mindset is also important.For those articles,----------------------------------12/30 Year-end and New Year Special!! EA Full Guide Part 3 https://www.gogojungle.co.jp/finance/navi/articles/805518/12 [Obon Holiday Special!] Now you’re an EA Master! “Mindset for Improving EA Operation”https://www.gogojungle.co.jp/finance/navi/articles/728298/17 [Obon Holiday Special!] Now you’re an EA Master! “Notes during EA operation”https://www.gogojungle.co.jp/finance/navi/articles/73797----------------------------------That said,this is substantial and quite important content,so even if you can’t grasp it immediately, be sure to review it!━━━━━━━━━━━━━━━【Reiwa’s Double-E EA Listing】https://www.gogojungle.co.jp/users/112481/productsSpecifically categorized Reiwa’s Double-E’s EA by genre https://www.gogojungle.co.jp/finance/navi/articles/67162(Portfolio diversification requires genre variety)━━━━━━━━━━━━━━━【List of Reiwa’s Double-E serialized articles】■ EA Beginner’s Course https://www.gogojungle.co.jp/finance/navi/series/1700--------------------------------About the calculation method for EA risk management https://www.gogojungle.co.jp/finance/navi/articles/64703【Portfolio version】 EA risk management calculation method https://www.gogojungle.co.jp/finance/navi/articles/65978Tips to identify scams easily (in the case of EA)https://www.gogojungle.co.jp/finance/navi/articles/64738Where to check first when you have questions about EA https://www.gogojungle.co.jp/finance/navi/articles/65619--------------------------------■ How to find a winning EA from backtests https://www.gogojungle.co.jp/finance/navi/series/1714--------------------------------■ No sugarcoating! GoGoJungle raises questions!https://www.gogojungle.co.jp/finance/navi/series/1701Where is GoGoJungle’s inquiry form?https://www.gogojungle.co.jp/finance/navi/articles/64723--------------------------------■ Reiwa’s Double-E: “Pullback buying and pullback selling logic” officially released!!https://www.gogojungle.co.jp/finance/navi/articles/65010■ Double-E FX Miscellaneous Talks https://www.gogojungle.co.jp/finance/navi/series/610━━━━━━━━━━━━━━━【Reiwa’s Double-E’s Beliefs】Develop EA by proper methods,gain the trust of more people,and maintain a long-term WIN-WIN relationship,to activate the EA market and improve literacy.━━━━━━━━━━━━━━━

“In the world of EA operation, whether you know this calculation is the dividing line between ‘collapse or not’!”

----------------------------------
https://www.gogojungle.co.jp/finance/navi/articles/64703
----------------------------------

━━━━━━━━━━━━━━━

【From starting EA to intermediate level - flow summary】

First, master the installation of the EA.

--------------------------------------------------------------------

MT4 EA (Expert Advisor) and Indicator installation steps

https://www.gogojungle.co.jp/post/1/8212

--------------------------------------------------------------------

※GoGoJungle video version※

Even at the start, many people struggle to understand everything at once.

I also stumbled many times at first, so take your time and you’ll be fine!

If you have any questions, use the “Inquiry form” to contact us!

----------------------------------

■ GoGoJungle

https://www.gogojungle.co.jp/inquiry

----------------------------------

【How to choose an EA】

Now that you feel you can operate an EA,

you might think, “I don’t know which EA will win… I don’t want to lose…”.

So, Reiwa’s Double-E aims to make it possible to gauge some pros and cons through

the following articles in a series.

--------------------------------

https://www.gogojungle.co.jp/finance/navi/series/1714

----------------------------------

Usually, the backtest period is longer than the forward period,

【How should you manage EA risk!?】

And, no matter how excellent an EA you obtain,

The following articles answer that.

----------------------------------

■ About the calculation method for EA risk management

https://www.gogojungle.co.jp/finance/navi/articles/64703

----------------------------------

【EA operation mindset is also important】

And,to sustain EA operation long-term, mindset is also important.

For those articles,

----------------------------------

12/30 Year-end and New Year Special!! EA Full Guide Part 3

https://www.gogojungle.co.jp/finance/navi/articles/80551

8/12 [Obon Holiday Special!] Now you’re an EA Master! “Mindset for Improving EA Operation”

https://www.gogojungle.co.jp/finance/navi/articles/72829

8/17 [Obon Holiday Special!] Now you’re an EA Master! “Notes during EA operation”

https://www.gogojungle.co.jp/finance/navi/articles/73797

----------------------------------

That said,

this is substantial and quite important content,

so even if you can’t grasp it immediately, be sure to review it!

━━━━━━━━━━━━━━━

【Reiwa’s Double-E EA Listing】

https://www.gogojungle.co.jp/users/112481/products

Specifically categorized Reiwa’s Double-E’s EA by genre

https://www.gogojungle.co.jp/finance/navi/articles/67162

(Portfolio diversification requires genre variety)

━━━━━━━━━━━━━━━

【List of Reiwa’s Double-E serialized articles】

■ EA Beginner’s Course

https://www.gogojungle.co.jp/finance/navi/series/1700

--------------------------------

About the calculation method for EA risk management

https://www.gogojungle.co.jp/finance/navi/articles/64703

【Portfolio version】 EA risk management calculation method

https://www.gogojungle.co.jp/finance/navi/articles/65978

https://www.gogojungle.co.jp/finance/navi/articles/64738

Where to check first when you have questions about EA

https://www.gogojungle.co.jp/finance/navi/articles/65619

■ How to find a winning EA from backtests

https://www.gogojungle.co.jp/finance/navi/series/1714

https://www.gogojungle.co.jp/finance/navi/series/1701

https://www.gogojungle.co.jp/finance/navi/articles/64723

■ Reiwa’s Double-E: “Pullback buying and pullback selling logic” officially released!!

https://www.gogojungle.co.jp/finance/navi/articles/65010

https://www.gogojungle.co.jp/finance/navi/series/610

【Reiwa’s Double-E’s Beliefs】

Method to calculate the minimum required capital and lots

Hello everyone.

I am Reiwa’s Double-E, the FX auto-trading and EA developer.

This time, on “risk management essential for EA operation,”

we will explain how to calculate the minimum required capital and the ratio of lots.

Basic formula for risk calculation

The basic of risk calculation is simple.

Required capital = Maximum drawdown + Required margin

（Note: the calculation should use the same lot size for both terms）

If you understand this, you can balance funds and lots for any EA.

Prerequisites

This time, explained under the following prerequisites.

Currency pair: USD/JPY

Maximum one-sided position: 1

Rate: 1 USD = 150 JPY

Leverage: 25x

Lot size: 0.1 lot (10,000 currency units)

Maximum drawdown: 40,000 JPY

Calculation formula for required margin

Required margin can be calculated with the following formula.

Rate (yen) × Lot size (currency units) × Maximum positions ÷ Leverage

Plugging in the prerequisites:

150 yen × 10,000 currencies × 1 position ÷ 25x = 60,000 yen

Therefore, the required margin in this case is 60,000 yen.

If the EA has variable lots (like grid or martingale), sum the lots of all positions to calculate.

Minimum required capital

Next, add the maximum drawdown.

Maximum drawdown (40,000) + Required margin (60,000) = 100,000 / per 0.1 lot

In other words, backtests show that 100,000 yen is needed for operating 0.1 lot.

Other currency pairs

For non-yen pairs (e.g., EUR/USD), use the base currency on the left and use the cross-rate of that currency with the yen to perform the same calculation.

Example: For EUR/USD → use EUR/JPY rate.

Summary

EA risk management is calculated as “maximum drawdown + required margin”

Minimal required capital becomes visible from backtesting data

“In the world of EA operation, whether you know this calculation is the dividing line between ‘collapse or not’!”

----------------------------------https://www.gogojungle.co.jp/finance/navi/articles/64703----------------------------------

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https://www.gogojungle.co.jp/finance/navi/articles/64703
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