How position sizing works
Position sizing works backwards from the loss you are willing to accept. You decide the money at risk first — usually a percentage of your account — and let the distance to your stop-loss decide how big the position can be. A wide stop means a small position; a tight stop allows a larger one. Either way, the loss if the stop is hit stays the same.
This is why professional traders talk about risk per trade rather than position size. Position size is an output, not an input. It changes with every setup, while the risk stays constant.
Position size formula
The calculator always rounds down to a size you can actually trade — whole shares, your exchange's quantity step, 0.01 lots or whole contracts — so the real loss at the stop never exceeds your budget. Both the exact and the rounded size are shown.
Forex lot size and pip value
Forex adds two complications: positions are quoted in lots (1 standard lot = 100,000 units of the base currency), and profit is earned in the pair's quote currency, which may not be your account currency.
- Quote currency = account currency (EUR/USD on a USD account): the conversion rate is 1, and one pip on a standard lot is worth exactly 10 USD.
- Base currency = account currency (USD/JPY on a USD account): one JPY is worth 1 ÷ USD/JPY dollars. At 150.00, a pip (0.01) on one lot is 1,000 JPY ≈ 6.67 USD.
- Cross pairs (EUR/GBP on a USD account): enter the current GBP→USD rate (the GBP/USD price).
The calculator never assumes a pip value of 10 for you — it derives it from the pip size, lot size and the rate you enter, so the answer is right for JPY pairs and cross pairs too.
Worked examples
Stock
- Account 10,000, risk 1% → risk amount = 100
- Buy at 100, stop at 95 → stop distance = 5 per share
- Position size = 100 ÷ 5 = 20 shares (position value 2,000)
Forex (EUR/USD, USD account)
- Account 10,000, risk 1% → 100
- Entry 1.1000, stop 1.0980 → 20 pips
- Pip value per lot = 0.0001 × 100,000 × 1 = 10 USD
- Lots = 100 ÷ (20 × 10) = 0.50 lots (50,000 units)
Futures (E-mini S&P 500)
- Risk 1,000, entry 5,000, stop 4,990 → 10 points
- Point value 50 → each contract loses 500 at the stop
- Contracts = 1,000 ÷ 500 = 2
How much should you risk per trade?
Most professional guidance lands between 0.25% and 2% per trade. The right number depends on how many trades you take, how correlated they are and how deep a drawdown you can tolerate without changing your behaviour.
The losing-streak chart above makes the trade-off visible. At 1% risk, ten straight losses cost about 9.6% of the account. At 5%, the same streak costs over 40% — and recovering from a 40% drawdown requires a 67% gain. Streaks of ten losses are not rare: a system that wins 40% of the time will see one roughly every few hundred trades.
Common position sizing mistakes
- Sizing first, placing the stop second. If the stop is placed to fit the size you wanted, it is in the wrong place. Choose the stop from the chart, then size.
- Confusing position value with risk. A 20,000 position with a 1% stop risks 200, not 20,000. Leverage magnifies position value; it does not change risk if the stop is respected.
- Ignoring gaps and slippage. Stops are not guaranteed. Overnight gaps can fill far beyond your level, so treat the calculated loss as a minimum, not a maximum.
- Using a fixed lot size for every forex pair. Pip values differ across pairs, so the same lot size carries different risk on EUR/USD and USD/JPY.
- Forgetting the risk/reward side. Correct sizing limits the damage of a loss; whether the trade is worth taking is a separate question for the risk/reward calculator.