Position sizing

Position sizing is how you decide the size of a trade before you place it. Rather than choosing a lot size by feel, you work backwards from a single figure: the amount you are willing to lose if the trade reaches its stop-loss. Done well, a losing trade costs what you planned, and no more.

What position sizing decides

The goal is to pick a lot size so that, if price reaches your stop-loss, the loss equals the amount you set aside to risk on that trade. Three numbers control this, and they are tied together: the cash you will risk, the distance to your stop in pips, and the value of each pip, which is set by the lot size you choose.

• The risk amount the fixed sum you decide you can lose on the trade, chosen before you look at any lot sizes.
• The stop distance how far your stop-loss sits from your entry, measured in pips.
• The pip value what one pip of movement is worth, which depends on lot size. As an illustration, on a pair quoted in your account currency, one pip is worth about 10 units per standard lot (100,000 units), 1 unit per mini lot (10,000), and 0.10 per micro lot (1,000).

Why a wider stop means a smaller position

Because the risk amount is fixed, stretching the stop further from entry forces each pip to be worth less. Suppose, as an illustration, you will risk 50 units with a 25-pip stop: each pip can be worth 2 units, so you pick the lot size closest to that pip value. Move the same 50 units of risk to a 50-pip stop and each pip can be worth only 1 unit, so the position is about half the size.

See the numbers on live prices

The calculator below does this arithmetic for you on live prices. Enter the amount you would risk and a stop distance in pips, and it works out the pip value and the lot size that keep the two in balance, so you can watch the size shift as the stop widens or narrows.