How to Calculate Position Size, Step by Step

Position size is how much you buy or sell in a single trade. Choosing it by feel is one of the most common reasons traders lose money. A better way is to decide how much you are willing to lose first, and then let that number set the size of the trade.

Why position size matters

Two traders can take the same trade with the same stop loss and end up with very different results. If one of them trades 0.05 lots and the other trades 1 lot, the second trader loses 20 times as much when the stop is hit. Good position sizing keeps every loss small enough that a bad run does not end your account.

The formula

Position size (in lots) = (account balance x risk %) / (stop loss in pips x pip value per lot)

The top part is the amount of money you accept to lose on the trade. The bottom part is how much money you lose per lot if the stop loss is hit. Dividing one by the other tells you how many lots fit your risk.

Step 1: Decide your risk per trade

Pick a percentage of your account that you accept to lose on one trade. Many traders keep this at 1% or less, and some use a bit more. With a $1,000 account, 1% is $10. With a $10,000 account, 1% is $100.

Step 2: Choose your stop loss distance

Place your stop loss where the trade idea is clearly wrong, such as beyond a recent swing high or low, and then measure the distance in pips. Do not choose the stop to fit a position size you already want. The market decides the stop, and the position size adjusts to it.

Step 3: Find the pip value

The pip value tells you how much one pip is worth for one standard lot. For many pairs that quote in US dollars, such as EUR/USD, it is about $10 per standard lot. For other pairs it is different, so check your broker's contract specifications. The Pip Value Calculator can help.

Step 4: Calculate the lot size

Put the numbers into the formula. Here is the example that the Position Size Calculator uses by default:

• Account balance: $1,000. Risk per trade: 1%. Amount at risk: $10.
• Stop loss: 20 pips. Pip value per standard lot: $10.
• Lot size = 10 / (20 x 10) = 10 / 200 = 0.05 lots.

To double-check, 0.05 lots is worth $0.50 per pip. If the stop loss is hit after 20 pips, the loss is 20 x $0.50 = $10, which is exactly 1% of the account.

A second example

Suppose the account is $10,000 and you risk 2%, so $200 is at risk. The stop loss is 50 pips and the pip value is $10 per lot. Lot size = 200 / (50 x 10) = 200 / 500 = 0.4 lots. At 0.4 lots a pip is worth $4, and 50 pips x $4 = $200, which matches the amount at risk.

What changes when the stop changes

The wider your stop loss, the smaller your position has to be if you keep the money at risk the same. Take a $10,000 account risking 1%, which is $100:

• 25-pip stop: 100 / (25 x 10) = 0.4 lots.
• 50-pip stop: 100 / (50 x 10) = 0.2 lots.
• 100-pip stop: 100 / (100 x 10) = 0.1 lots.

Doubling the stop distance halves the position. The dollar risk stays at $100 in every case. This is the main idea behind position sizing.

Rounding and lot steps

Brokers usually allow lot sizes in steps such as 0.01. If the formula gives 0.057 lots, round down to 0.05 rather than up to 0.06, so that you never risk more than planned.

The same idea for crypto and stocks

The method works for any market. You just replace pips with price distance. Number of units = amount at risk / (entry price - stop price). As an illustration, say you risk $100 on a coin bought at 50,000 with a stop at 48,000. The distance is 2,000, so you can buy 100 / 2,000 = 0.05 coins. The position is worth 0.05 x 50,000 = $2,500, and if the stop is hit the loss is 0.05 x 2,000 = $100.

Common mistakes

• Using the same lot size on every trade, whatever the stop distance.
• Moving the stop loss further away after sizing the trade, which raises the real risk.
• Forgetting that spreads, commissions and slippage add to the loss.
• Opening several trades on correlated pairs, which adds up to more risk than any single trade shows.
• Mixing up pips and price units when measuring the stop.

Try it yourself

Position sizing takes a minute once it becomes a habit. Enter your balance, risk percentage, stop loss and pip value into the Position Size Calculator, and it gives you the lot size and the amount at risk straight away.

Disclaimer: This article is for educational purposes only and does not constitute financial advice. Trading involves significant risk of loss.