Master the art of position sizing to protect your capital and maximize returns. Learn how to calculate the perfect position size for every trade and avoid the #1 reason traders fail.
90% of traders lose money — not because they can't predict market direction, but because they don't know how much to risk per trade. Even winning traders can blow their accounts with poor position sizing.
Position sizing is the process of determining how much capital to risk on each trade. It's the difference between sustainable growth and account destruction. This guide will teach you the exact formulas and principles used by professional traders.
Use our Position Size Calculator to practice the concepts in this guide with real numbers.
Position Size = (Account Balance × Risk %) ÷ (Entry Price - Stop Loss)This formula ensures you never risk more than your predetermined percentage, regardless of market volatility.
Your total trading capital. Always use your current balance, not your starting balance.
Example: $10,000 account balance
How much of your account you're willing to lose on this single trade.
Recommended: 1-2% for beginners, max 5% for experienced traders
The price at which you plan to enter the trade.
Example: EUR/USD at 1.1200
The price at which you'll exit to limit losses.
Example: Stop loss at 1.1150 (50 pips risk)
Result: Trade 0.04 lots (4,000 units) to risk exactly $200
Result: Trade 0.05 lots (5,000 units) to risk exactly $750
Trading the same lot size (e.g., always 0.1 lots) regardless of stop loss distance.
Why it's deadly: You'll risk 10 pips on one trade and 100 pips on another, creating inconsistent risk exposure.
Using a fixed percentage of your account as position size (e.g., always risk 10% of account).
Why it's deadly: Ignores the actual risk (stop loss distance) and can lead to massive losses.
Doubling position size after a loss to "get back to even faster."
Why it's deadly: Violates risk management and can wipe out your account in a few trades.
Taking multiple positions in correlated pairs without adjusting position sizes.
Why it's deadly: You're essentially taking one large position disguised as multiple trades.
Sizing positions without predetermined stop losses.
Why it's deadly: Impossible to calculate proper risk, leading to account-killing losses.
Decide on your maximum risk per trade (1-2% for beginners). Write this down and stick to it.
Before every trade, use our Position Size Calculator to determine exact lot size.
Practice position sizing calculations on a demo account for at least 2 weeks before going live.
Keep a trading journal noting your position size, risk amount, and actual P&L for each trade.
Position sizing is just the foundation. Master these related concepts next:
Download this guide as PDF for offline review and reference.