Position sizing: how much to risk per trade

Position sizing decides how much a single trade can hurt you. It is the part of trading you fully control, and it is where most accounts are won or lost. The idea is simple: decide how much you are willing to lose on the trade first, then work out the size that fits.

The formula

Position size = amount you are willing to risk divided by the loss per unit if your stop is hit. The amount at risk is your account balance multiplied by your risk percentage. The loss per unit is the distance from entry to stop, multiplied by the value of that distance for one unit.

A worked forex example

• Account balance: 10,000 USD. Risk per trade: 1%. That is 100 USD at risk.
• Pair: EUR/USD. Entry to stop-loss distance: 25 pips.
• For a USD account on EUR/USD, one pip on one standard lot (100,000 units) is worth about 10 USD.
• Loss per lot if stopped out: 25 pips x 10 USD = 250 USD.
• Position size: 100 / 250 = 0.40 lots.

If you widen your stop to 50 pips, the size halves to 0.20 lots. The stop is set by the market structure, and the size adapts to it, not the other way round.

Why small losses matter so much

Losses need larger gains to recover, and the gap grows quickly:

• A 10% loss needs about an 11.1% gain to get back to even.
• A 20% loss needs a 25% gain.
• A 50% loss needs a 100% gain.

Choosing a risk percentage

There is no universal number. Many traders keep the risk on a single trade to a small single-digit percentage or less of their account, and lower still when they are new or trading a prop firm account with a strict drawdown limit. The right figure depends on your strategy's win rate, your drawdown tolerance and any rules you must follow. This is general education, not a recommendation.

Sizing with different account currencies

The pip value in the formula is measured in your account currency. If you trade EUR/USD from a dollar account, a standard lot is worth 10 dollars per pip. From a pound account that pip has to be converted into pounds at the current GBP/USD rate, so the same lot is worth less than 10 pounds per pip when the pound is stronger than the dollar. For pairs where your own currency is the base, such as USD/JPY on a dollar account, the conversion uses the pair's own price.

The easiest way to avoid mistakes is to use a calculator that asks for your account currency and any rate it needs, rather than assuming 10 for every pair.

A second worked example

• Account 5,000, risk 0.5% = 25 at risk.
• GBP/USD long with a 15 pip stop, USD account, pip value 10 per standard lot.
• Lots = 25 / (15 x 10) = 0.1667, which rounds down to 0.16 lots on a broker with a 0.01 step.
• Rounding down keeps the risk at or below the 25 you planned. Rounding up would exceed it.

Sizing when the stop changes

If price moves in your favour and you move the stop to break even, the size does not change. If you add to a winning position, calculate the total risk of both positions from the new stop, not each piece separately. If you widen a stop after entry because you do not want to be stopped out, you have increased the risk beyond the plan, which is the most common way sizing rules are broken in practice.

Checking risk across several trades

• Add up the risk of all open trades. Five trades each risking 1% is a 5% exposure if they all lose together.
• Look for shared drivers. Long EUR/USD, long GBP/USD and short USD/CHF are three ways of betting against the dollar.
• Set a cap on total open risk, as well as risk per trade, and keep to it.
• Around scheduled news, correlated positions tend to move together, so the cap matters most then.

Sizing is not exciting, and it is the part of trading that most reliably separates accounts that survive a bad run from accounts that do not.

Common mistakes

• Sizing up after a win or to win back a loss, which makes the next loss bigger.
• Setting the stop after choosing the size, so the stop ends up too tight or too wide.
• Forgetting that several open trades in correlated pairs add up to one larger risk.
• Ignoring spreads, slippage and fees, which make the real loss larger than planned.

Key takeaways

• Lots = risk amount / (stop in pips x pip value per lot).
• Set the stop from the chart, then let the size follow.
• Round lot size down to your broker's step, never up.
• Add up the risk of correlated open trades, and cap total open risk.
• Never widen a stop after entry to avoid a loss.