What is Position Sizing?

Calculating exactly how many lots to trade so a stopped-out trade loses only your planned percentage.

Position sizing is the calculation that decides how large a trade should be so that, if the stop loss is hit, the account loses exactly the planned percentage — typically 1%. The formula is: risk amount ÷ (stop distance × pip value). A $10,000 account risking 1% has $100 of risk; with a 50-pip stop on EUR/USD ($10 per pip per standard lot), the correct size is 0.20 lots. The chart chooses the stop; the math chooses the size.

Sizing is where survival is actually decided. At 1% risk per trade, ten straight losses — which every real strategy eventually produces — cost under 10% of the account, a recoverable dent. At 10% risk, the same streak is ruin. Two traders with identical entries and different sizing habits live in different professions: one is managing a business, the other is spinning a wheel.