▸ YOUR TRADE
How position size is calculated
Position sizing answers one question: how many units can I buy so that hitting my stop loss costs exactly the amount I chose to risk? It works backwards from the loss you accept, rather than forwards from what you can afford.
- 01Decide the loss you accept. 1% of a $10,000 account is $100. That figure is the input, not the outcome.
- 02Measure the stop distance. Entry 1.0850 to stop 1.0800 is 0.0050, or 50 pips.
- 03Divide. $100 risk ÷ 50 pips ÷ $10 per pip per lot = 0.20 lots.
- 04Check the position value. 0.20 lots is $21,700 of exposure on a $10,000 account. Fine with a stop, ruinous without one.
Lot size and position size
They are the same calculation under two names. Forex traders say lot size because currency positions are quoted in lots: a standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000. So the 0.20 lots in the example above is 20,000 units, or two mini lots.
For forex pairs this calculator gives the answer in lots. It assumes a pip on a standard lot is worth $10, which holds for pairs quoted in US dollars such as EUR/USD; for a pair quoted in another currency the real pip value moves with the exchange rate, so treat the lot figure there as an estimate. For gold and other commodities, stocks and crypto it gives units instead (ounces, shares or coins), because what one "lot" means in those markets differs from broker to broker.
Why the stop comes first
Most traders pick a position size, then place a stop wherever it leaves room. That inverts the logic and lets the market decide what a mistake costs. Setting the stop where the trade is genuinely wrong, then sizing to it, keeps every loss the same size. Which is what makes a losing run survivable.
What counts as a sensible risk percentage
1% to 2% per trade is the common range. The arithmetic behind it is simple: at 2% per trade, ten consecutive losses cost roughly 18% of the account. At 10% per trade, the same run costs 65%, and recovering from that needs a 186% gain, not a 65% one.
Position size answers how much. It says nothing about whether the trade is worth taking. That is what the risk/reward ratio measures, and the two are usually decided together.