How much is needed to limit GOLD to a loss of "1% of balance": calculate the barrier of the minimum lot 0.01
If you try to set GOLD to “max loss of 1% of balance per trade,” even with the minimum lot, the loss incurred by the stop loss can exceed 1%. For USD/JPY, the percentage you reach is reachable with a small capital, but with GOLD it may not be. In this article, we will reverse-calculate the required balance from the loss of the minimum lot.
Conclusion in Advance
- If the loss incurred by hitting the stop when trading the minimum lot is larger than the allowed loss (such as 1% of the balance), the lot cannot drop any further.
- Required balance = loss of the minimum lot ÷ the allowable ratio.
- In GOLD, with a contract size of 100 ounces, minimum lot 0.01, and 1 dollar = 158 yen, the loss of the minimum lot when the stop is hit by 10 dollars is 1,580 yen. To keep it to 1%, you need 158,000 yen. If the stop for USD/JPY is 30 pips, the loss for the minimum lot (1,000 units) is 300 yen, and the required balance is 30,000 yen. A GOLD stop of 10 dollars (158,000 yen) requires about five times more balance than the USD/JPY stop of 30 pips.
Formula
Loss of the minimum lot = minimum lot × contract size × stop distance × conversion rate
Required balance = loss of the minimum lot ÷ the allowable ratio
In GOLD, with contract size 100 ounces and minimum lot 0.01, 0.01 lot equals 1 ounce. If the stop distance is 1 dollar, the loss is 1 dollar (158 yen). In other words, the loss of the minimum lot is “stop distance (dollars) × 158 yen,” and the balance required to keep it to 1% is “stop distance (dollars) × 15,800 yen.”
For USD/JPY (yen-denominated), a 30-pip stop with minimum lot 0.01 (1,000 units) is 1,000 × 0.30 yen = 300 yen. The required balance is 300 ÷ 0.01 = 30,000 yen. A GOLD stop of 10 dollars (158,000 yen) would require roughly five times more balance than the USD/JPY stop of 30 pips.
The numbers for stop distance are for explanation and are not recommendations.