Calculating Position Size — Risk and Trade Management

The Position Sizing Formula

Position sizing answers one question: how many lots should I trade so that if my stop-loss is hit, I only lose the amount I planned to risk? The formula is: Position Size = (Account Balance × Risk %) / (Stop-Loss in Pips × Pip Value per Lot).

This formula works backwards from your risk tolerance, rather than guessing a lot size and hoping the loss is acceptable.

[Read the lesson: Calculating Position Size](/learn-to-trade/risk-and-trade-management/calculating-position-size)

Worked Example

Suppose you have a $10,000 account and you decide to risk 1% per trade. That means your maximum acceptable loss on this trade is $100 ($10,000 × 1%).

Your analysis tells you the stop-loss needs to be 50 pips away from entry, and on this pair, one standard lot has a pip value of $10.

**Calculating the Lot Size:** Risk amount: $10,000 × 1% = $100. Position size = $100 / (50 pips × $10 per pip) = $100 / $500 = 0.2 lots. Trading 0.2 lots with a 50-pip stop means a maximum loss of exactly $100 if the stop is hit.

[Read the lesson: Calculating Position Size](/learn-to-trade/risk-and-trade-management/calculating-position-size)

Why Fixed Lot Sizes Are Risky

Many beginners trade the same lot size, such as always using 1 standard lot, regardless of how far away their stop-loss is. This means a trade with a tight 10-pip stop risks far less than a trade with a wide 100-pip stop, even though both used the same lot size.

Calculating position size per trade keeps your dollar risk consistent, which is what actually protects your account, not the lot size itself.

[Read the lesson: Calculating Position Size](/learn-to-trade/risk-and-trade-management/calculating-position-size)

Adjusting for Stop Distance

Notice that stop distance and position size move in opposite directions for the same dollar risk. A wider stop requires a smaller position size, while a tighter stop allows a larger position size, since both should result in the same maximum dollar loss.

[Read the lesson: Calculating Position Size](/learn-to-trade/risk-and-trade-management/calculating-position-size)