▸ 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 — 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.
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.