How To Think About Your Base Currency When Position Sizing in Amibroker?

The most important thing is not exactly what you do, that it’s you understand what you are doing. The implications of it, because there’s different ways to configure this. You could have in Amibroker, your base currency is Euro and you could run your systems, which are trading US dollar stocks, and Amibroker will do the calculations and size everything back so that it’s in your base currency. But when you place the trades in US dollars in interactive brokers, you need to know how many shares you’re buying to get the right US dollar size position. Therefore, it will be fine as long as you do the calculations correctly and you choose the right numbers.

Or you could just say, Amibroker, don’t worry about the base currency, just run it in US dollars. Tell me the US dollar position size and I will place the US dollar size in my account. So you don’t have to use the Amibroker base currency, because you can figure it out yourself. Thus, my approach is actually I do the currency calculations out of Amibroker because I have a spreadsheet, which is my capital allocation spreadsheet. Every day I put in my total account balance in Australian dollars at the top, and for each system I have a percentage that I allocate to each system. Let’s say I have three systems and I have 33%, 33%, 33%, just for an example, and I have a hundred thousand dollars in my account then 33,000, 33,000, 33,000 Aussie dollars.

Let’s say the system three is a US dollar system. It’s a US stock system and that’s got 33,000 Aussie dollars allocated to it. I convert that to US dollars to know what my maximum US dollar exposure is for stocks in that system. Then I take that US dollar amount and I put that into my back test to say, this is the capital that system has available today to size the positions and it gives me the positions in US dollars, so then I place that size of trade.

The risk on stocks is that if you don’t do the conversion between your base currency and the trade currency right, you end up with positions that are too big and you end up with a draw down bigger than you expect. Therefore, you got to make sure that you’re sizing appropriately across the currencies. Because let’s say I had in my example, 33,000 Aussie dollars attributed to one system, which should be 25,000 US dollars. But if the position size is calculated off the 33, it’s a big number, and I just take that and I buy that many US dollars worth of stock, my position is too big, because the position should be based on the 25.