Position Sizing Math
The one calculation every trade needs
Position sizing answers one question before every trade: given how much you're willing to lose if you're wrong, how large a position can you actually take? Getting this right is arguably more important than being right about market direction — it's what keeps a string of losing trades from ever becoming account-ending.
The three inputs
Position size depends on exactly three things: your account balance, the percentage of it you're willing to risk on this one trade (commonly 1-2% for disciplined traders), and the distance (in pips or price units) between your entry and your stop-loss.
- Risk Amount = Account Balance × Risk % — the actual dollar amount you're willing to lose on this trade.
- Stop-Loss Distance = how far (in pips) your stop is from your entry.
- Position Size = Risk Amount ÷ (Stop-Loss Distance × Value per pip per unit) — solved backward from how much you're willing to lose.
Key Formula / Concept — Position Sizing Formula
Lot Size ≈ (Account Balance × Risk %) ÷ (Stop-Loss in Pips × Pip Value per Lot)
A $10,000 account risking 1% ($100) with a 20-pip stop on a pair where a standard lot = $10/pip needs: $100 ÷ (20 × $10) = 0.5 standard lots.
Pro Tip
Notice the formula never asks "how confident are you in this trade?" Position sizing is deliberately confidence-independent — it's about surviving being wrong, not about sizing up because a setup "feels" great.
Risk Warning
High leverage lets you open a position far larger than your account balance could normally support — which means a small, ordinary price move against you can wipe out a much larger share of your account than it would unleveraged. Leverage doesn't change your edge in the market; it only changes how fast a mistake becomes expensive.
Try it: plug in your own account balance, risk %, and stop-loss distance.
Mini Lot Size Calculator
Lot Size ≈ (Account Balance × Risk %) ÷ (Stop-Loss Pips × Pip Value per Lot)
Risk Amount: $100
Suggested Lot Size: 0.5 standard lots
Pip value per lot varies by currency pair and account currency — $10/pip for a standard lot is typical for USD-quoted pairs, but always check your broker's actual figure before sizing a real trade. For informational/educational purposes only, not financial advice.
Try it: see how much margin a position actually requires at a given leverage, and how much free margin is left.
Margin & Leverage Calculator
Required Margin = Position Size ÷ Leverage
Required Margin
$500
Free Margin
$500
Margin Level
200%
Margin level is a simplified Balance ÷ Required Margin figure — your broker's actual margin-call and stop-out thresholds vary. For informational purposes only, not financial advice.
Checkpoint Quiz
Checkpoint Quiz
Question 1 of 5What three inputs does a position-sizing calculation need?