Position sizing
Position sizing — Deciding how many lots to trade from how much you are willing to lose — the single decision that most determines whether an edge survives long enough to pay.
Traders spend most of their attention on entries and almost none on size, which is the wrong way round. A genuine edge traded too large dies before it pays; a mediocre edge traded sensibly survives long enough to be improved. Size is where that is decided.
In plain English
The method is one line: decide what you are willing to lose in money, divide by what the trade will cost you per unit if the stop is hit, and that is your size. Everything else — contract sizes, pip values, currency conversion — is bookkeeping in service of that line.
The rule that matters more than the arithmetic is always round down. If the exact answer is 0.337 lots and your broker accepts 0.01 steps, take 0.33. Rounding to 0.34 silently increases your risk above the number you just decided, and a risk calculator that rounds up is doing the opposite of its job.
The choice underneath it is fixed-lot versus fixed-fractional. Fixed-lot trades the same size regardless of balance, so each loss is a larger share of what remains and drawdowns accelerate. Fixed-fractional risks a constant percentage, so size shrinks as the account falls, decline decelerates, and the account mathematically cannot reach zero. Almost all professional guidance is fixed-fractional for that reason alone.
The formula
Lots = risk amount ÷ (stop distance × value per unit per lot) then round DOWN to the broker’s lot step
- Risk amount — a percentage of balance, or an absolute figure. Decided before the trade, not after seeing the chart.
- Stop distance — in the same unit as the value per lot: pips for FX, points for indices and metals.
- Value per unit per lot — the pip or point value, converted into your account currency.
A wider stop means a smaller position for the same risk, which is the property most people get backwards. Widening a stop without shrinking the size does not reduce risk; it increases it.
Worked example — the demo account
A statement records the sizes you traded but not the risk you intended, so this is worked from stated inputs. A 10,000 USD account risking 1% on EUR/USD with a 30-pip stop.
| Risk budget | $100.00 | 1% of 10,000 |
|---|---|---|
| Pip value per lot | $10.00 | |
| Cost if stopped, per lot | $300.00 | 30 × 10 |
| Exact size | 0.3333 lots | 100 ÷ 300 |
| Rounded DOWN to 0.01 | 0.33 lots | |
| Actual risk at that size | $99.00 |
0.33 lots, risking $99 against a $100 budget. Rounding up to 0.34 would have risked $102 — above the number just chosen.
Three dollars sounds like pedantry over a single trade. Over a thousand trades it is a systematic 2% overshoot of every risk decision you make, applied precisely when the arithmetic is least convenient — and it compounds with everything else that drifts.
The same account with a 60-pip stop gets 0.16 lots, and with a 15-pip stop gets 0.66. Same risk, same account, four times the size difference — driven entirely by the stop. This is why sizing has to come after the stop is chosen, and never before.
Every figure above is from the demo account TapeSheet ships with — 96 closed trades, generated from a fixed seed. Open the same account →
What this does not tell you
The caveat is the part worth reading. Most tools put it in a footer, if they print it at all.
- It assumes the stop is honoured at the level you set. Gaps and slippage make the realised loss larger than planned, and both are worst in exactly the conditions that trigger stops.
- It sizes one trade, not a portfolio. Five correlated positions each risking 1% is not five separate 1% risks; in a correlated move it is closer to one 5% risk.
- It says nothing about whether the stop is in a sensible place. A stop chosen to produce a comfortable size rather than to invalidate the idea is a stop that will be hit, and the arithmetic will faithfully size around it.
- Percentage risk is not constant risk in money. As the account grows, 1% is more money, so the same percentage drawdown later costs more than it does today.
Where TapeSheet shows it
Your realised sizes come straight from the statement and appear on every trade in the list. Enter the risk you intended in a trade’s journal panel and TapeSheet converts the result into R, which is where the size you took and the size you meant to take can finally be compared.
Questions
What percentage should I risk?
Most professional guidance sits between 0.5% and 2%, and prop-firm rules are usually written to force the same range. The arithmetic reason is that the cost of being wrong is asymmetric: halving your risk roughly halves your return but far more than halves your chance of a drawdown deep enough to end the account. The right number for you depends on your win rate, your payoff ratio and what you can actually sit through.
Should I size up after a losing streak?
No. Martingale sizing — increasing after losses to recover faster — converts a series of survivable losses into one unsurvivable one, and it feels most compelling exactly when the account can least afford it. Fixed-fractional does the opposite by construction, shrinking size as the balance falls.
Why does my broker reject the size the calculator gives?
Usually a minimum lot size or a step you have not accounted for. Most brokers accept 0.01 as a minimum and a step, but micro and cent accounts differ, and some instruments — indices especially — have larger minimums. If the honest answer comes out below your broker’s minimum, the correct response is to skip the trade or widen the account, not to take the minimum and accept more risk than you decided.
Related terms
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