Overtrading and chasing losses
What you learn in 3 minutesThis lesson shows how two habits — trading more often than your plan allows, and increasing your size to win back a loss — turn one bad trade into a bad week. On EUR/USD around 1.0850, one pip on one standard lot is worth 10 units of the quote currency, so 20 pips is 200 units before any conversion to naira. We work through a day of 30 trades and show what the costs alone take out of the result.
30 trades in one day: what the costs take
| Step | Amount | Note |
|---|---|---|
| Instrument and price | EUR/USD around 1.0850 | The example price used for the whole day. |
| Pip value on one standard lot | 10 units of the quote currency | 100,000 x 0.0001 = 10. |
| Spread cost per trade | 1.0 pip | A common spread on EUR/USD; it varies between brokers and by account type. |
| Spread cost for 30 trades | 30 pips | 30 x 1.0 pip. |
| Size used | 0.10 lots | One tenth of a standard lot. |
| Cost in quote currency | 30 units | 30 pips x 10 units per pip x 0.10 lots = 30 units. |
| Assumed exchange rate | ₦1,600 per unit | An assumption for this example; the real rate moves and varies. |
| Total cost in naira | ₦48,000 | 30 units x ₦1,600 = ₦48,000. |
| Gross result before costs | ₦0 | The 30 trades ended flat before costs. |
| Net result after costs | -₦48,000 | ₦0 minus ₦48,000. |
The broker may round the pip value, charge a commission on top of the spread, or quote a wider spread at busy times. Swap or financing charges can also apply if a position is held overnight. All of these change the final figure.
The mistake people make here
The common mistake is to treat a flat day as harmless and then trade again to make back the spread. The second mistake is to raise the size after a loss, so the same 30 pips of cost is charged on a larger position. Instead, set a maximum number of trades for the day and a maximum loss in naira before you start, and stop when either is reached. If you have already hit the limit, the next trade is not a recovery plan; it is a bigger bill.Check yourself
If you take 20 trades in a day on EUR/USD at 1.0 pip spread and 0.10 lots, what is the spread cost in naira at ₦1,600 per unit?
20 pips x 10 units per pip x 0.10 lots = 20 units. 20 x ₦1,600 = ₦32,000.
You start the day with a plan of 10 trades and a maximum loss of ₦30,000. After 10 trades you have paid ₦16,000 in spread and your gross result is ₦0. You take 10 more trades at the same size. What is the spread cost now, and have you broken your plan?
The extra 10 trades cost 10 pips x 10 units x 0.10 lots = 10 units, which is ₦16,000. Total spread is ₦32,000. You have broken the plan on both counts: you traded more than 10 times, and the total cost is above ₦30,000.