🛡️ Risk & Money·beginner

Position Sizing

The math that tells you how many lots to trade based on your account, stop distance, and risk tolerance.

Position sizing is how you translate "I want to risk 1% on this trade" into "I should trade 0.23 lots." The formula: (account risk in $) ÷ (stop distance in pips × pip value) = lot size. Without proper position sizing, you're either over-risking (on trades with tight stops) or under-risking (on trades with wide stops). Both kill long-term results. Over-risking eventually blows you up. Under-risking means your winners don't cover your losers. The goal is to risk the SAME dollar amount on every trade regardless of stop distance. If your stop is 20 pips, trade bigger. If your stop is 80 pips, trade smaller. The risk stays constant at 1% or whatever your rule is.

Real trade example

A consistent trader risking 1% per trade with a 40% win rate and 1:3 R:R on 200 trades per year grew $5k to $14k in 12 months. Same system without position sizing would have blown up in the first bad week.

Related terms

Lot

beginner

The standard unit of trade size in forex — a standard lot is 100,000 units of the base currency.

Stop Loss

beginner

An order that automatically closes your trade at a predetermined loss level — your first line of survival.

Leverage

beginner

Borrowed money from your broker that lets you control a large position with a small deposit.

Kelly Criterion

advanced

A mathematical formula that calculates the optimal bet size based on win rate and reward-to-risk — used to maximize long-term growth.

Sharpe Ratio

advanced

A risk-adjusted return metric that measures how much excess return you're getting per unit of risk — higher is better.

Sortino Ratio

advanced

A risk-adjusted return metric similar to Sharpe but only counts downside volatility — better for asymmetric strategies.

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