Guide · Position sizing
The short answer
Fix the loss first, then divide by the stop distance. Everything else is arithmetic.
Position size is the only input in trading you control exactly. The market decides your win rate; you decide how much a loss costs. The arithmetic is one line:
Everything else is a matter of expressing the same three quantities in whatever units your instrument happens to use: lots for FX, shares for equities, contracts for futures.
A $25,000 account, risking 1% per trade, on EURUSD with a 40-pip stop. One standard lot is 100,000 units, and one pip on a standard lot is $10.
So 0.625 lots — or 62,500 units. If the stop is hit, the loss is $250, which is the 1% you decided on before you knew anything about the trade.
Most account blow-ups come from sizing by lot rather than by risk. A trader who "always trades one lot" is risking $400 on a 40-pip stop and $1,200 on a 120-pip stop — three times the exposure for a trade they may consider no more confident.
Fixing the position and letting the risk float means the widest stop, on the least certain setup, carries the largest loss. That is precisely backwards.
Worth knowing
Round down, never up. A broker with a 0.01-lot minimum turns 0.625 into 0.62, not 0.63. Rounding up looks trivial and is the one direction that puts you over the limit you set — every time, on every trade.
It assumes you get filled at your stop. In a gap, a fast market, or a weekend open, you will not, and the realised loss exceeds the planned one. It also ignores the spread, which widens the effective stop distance by a pip or two on a major and considerably more on a thin cross.
Neither invalidates the method. Both mean the number it produces is a floor on your loss, not a ceiling — so choose the risk percentage with a little room in it.
Put your own account, risk and stop into the position size calculator; it shows the arithmetic rather than only the answer.
The formula assumes the pip value is in your account currency. On a pair whose quote currency differs from your account, it is not, and the pip value has to be converted at the current rate.
A A$25,000 account risking 1% with a 40-pip stop therefore sizes to 250 ÷ (40 × 15.38) = 0.41 lots, not the 0.625 the unconverted arithmetic would give. Skipping the conversion overstates the position by more than half.
Worth knowing
The conversion rate moves while the trade is open, so the realised risk drifts slightly from the planned one. For a single trade this is negligible; across a portfolio held in a currency that moves against your account it is not.
Only the "value per unit" term changes. Everything else is identical, which is why it is worth learning once rather than memorising a variant per market.
| Market | Unit | Value per unit |
|---|---|---|
| Forex | Pip on a standard lot | $10 on USD-quoted, 1,000 ÷ price on JPY-quoted |
| Shares | One share | The price move per share, in the listing currency |
| Futures | One tick | The contract tick value, e.g. $12.50 on ES |
| Crypto | One coin or contract | The quote-currency move per unit held |
| CFD indices | One point | The contract point value your broker states |
A $25,000 account risking 1% on a share trade with a $2.40 stop: 250 ÷ 2.40 = 104 shares. Same three inputs, same division.
Some brokers have a minimum size larger than your calculation returns. Rounding up to reach it is the wrong response, and it is common: it silently raises the risk above the limit you set, sometimes by a multiple.
Where this goes wrong
The instinct to round up is strongest on the setups that look best, which is exactly when position sizing is doing its most useful work.
units = (account × risk%) ÷ (stop distance × value per unit). A $25,000 account risking 1% with a 40-pip stop on a USD-quoted pair sizes to 0.625 lots.
Yes — that is the point. A wider stop produces a smaller position and the same dollar loss. Position size is an output of the risk you chose, never an input.