Position sizing for beginners: how many lots should you trade?

Most blown trading accounts do not fail because of bad analysis. They fail because of oversized positions. Position sizing is the skill that decides how much you lose when you are wrong.

The idea

Instead of choosing a lot size by feel, you decide the amount you are willing to lose on the trade, then let your stop loss distance determine the size.

The formula

Position size in lots = (account balance x risk percent) divided by (stop loss in pips x value of one pip per lot).

A worked example

You have 10,000 and risk 1%, so you are risking 100. Your stop loss is 25 pips away and one pip is worth 10 per standard lot. The position size is 100 divided by (25 x 10) = 0.40 lots. If the stop is hit, you lose about 100, which is 1% of your account.

You can try your own numbers in the free position size calculator.

How much should you risk?

Many traders risk between 0.5% and 2% per trade. At 1% risk, ten losses in a row cost roughly 10% of the account. At 5% risk, ten losses in a row are close to a 40% loss, which is very hard to recover from.

Common mistakes

• Using the same lot size on every trade regardless of stop distance.
• Widening the stop after entry without reducing size.
• Increasing size after a loss to win it back.
• Forgetting that the pip value differs between instruments.

Trading carries a high risk of loss. This article is for education only and is not financial advice. Results shown are from setups tracked in our own journal, they are not audited, and past results do not guarantee future results.