Position Sizing:
The Complete Guide
How to calculate the exact lot size for any trade — forex, gold, indices, or crypto — so a losing trade costs a known, controlled percentage of your account. One formula, explained completely.
What Is Position Sizing?
Position sizing is the process of calculating how large a trade to take — expressed in lots or contracts — so that if the trade hits your stop loss, you lose a predetermined, acceptable amount of your account.
It answers the question: "How many lots should I trade on this setup, given my account size and where my stop loss is?"
The key insight is that position sizing separates the size of a trade from the size of the risk. Without it, traders default to a fixed lot size regardless of stop distance — meaning the actual dollar risk per trade varies unpredictably. With proper position sizing, a 20-pip stop and a 100-pip stop can carry identical dollar risk.
The Position Sizing Formula
Formula
Dollar Risk = Account Balance × (Risk % ÷ 100)
Stop Pips = |Entry Price − Stop Loss| ÷ Pip Size
Lot Size = Dollar Risk ÷ (Stop Pips × Pip Value per Lot)
Example — EUR/USD, $100,000 Account
| Account Balance | $100,000 |
| Risk Percentage | 0.5% |
| Dollar Risk | $500 |
| Entry Price | 1.08500 |
| Stop Loss | 1.08250 → 25 pips |
| EUR/USD Pip Value | $10.00 per standard lot |
| Calculation | $500 ÷ (25 × $10) |
| Lot Size | 2.00 lots |
Pip Values by Instrument Type
The pip value is what makes position sizing different across instruments. Here are the standard values used by most brokers:
| Instrument | Pip / Point Size | Value per Standard Lot |
|---|---|---|
| EUR/USD, GBP/USD, AUD/USD | 0.0001 | $10.00 per pip |
| USD/JPY, EUR/JPY, GBP/JPY | 0.01 | ≈ $6.70 per pip |
| Gold (XAU/USD) | 0.1 | $10.00 per point |
| Silver (XAG/USD) | 0.01 | $5.00 per point |
| NAS100, SPX500 | 1 | $1.00 per point |
| US30 (Dow Jones) | 1 | $1.00 per point |
| GER40, UK100 | 1 | ≈ $0.12 per point |
| BTC/USD | 1 | $1.00 per point |
| EUR/GBP, GBP/CHF (crosses) | 0.0001 | ≈ $6.50 per pip |
Pip values are approximate and vary slightly by broker contract. The TRADE90 calculator applies the correct value for each of 45+ instruments automatically.
Worked Examples Across Instruments
GBP/USD — $50,000 Account
Gold (XAU/USD) — $100,000 Account
NAS100 — $25,000 Account
USD/JPY — $10,000 Account
Why Risk Percentage Changes Everything
Consecutive losing trades are statistically inevitable for any strategy. The question is whether your account survives them. This table shows account drawdown after losing streaks at different risk levels.
| Risk / Trade | 5 Losses | 10 Losses | 15 Losses |
|---|---|---|---|
| 0.5% | −2.5% | −4.9% | −7.1% |
| 1.0% | −4.9% | −9.6% | −14.0% |
| 2.0% | −9.6% | −18.3% | −26.0% |
| 5.0% | −22.6% | −40.1% | −53.7% |
Compound drawdown calculated on rolling equity. A 10-loss streak is statistically normal for any strategy with a 50% win rate.
5 Position Sizing Mistakes That Blow Accounts
Fixed lot size on every trade
Trading 0.10 lots regardless of stop distance means your dollar risk per trade varies by 5× or more. A 20-pip stop at 0.10 lots risks $20. A 150-pip stop at 0.10 lots risks $150. Your account equity cannot be managed if your risk per trade is unknown.
Deciding lot size before stop placement
Correct sequence: (1) identify entry and stop based on market structure, (2) calculate lot size. Reversing this — choosing lots first, then finding a stop — produces stops placed at arbitrary distances that don't reflect trade invalidation levels.
Using starting balance instead of current equity
Position size should always be calculated on your current live equity, not your starting balance. If you've had losses and your account is down, your dollar risk should scale down automatically. Using starting balance inflates risk during drawdowns.
Ignoring pip value differences across instruments
Gold's $10 per point per 0.1 lot and NAS100's $1 per point per 0.1 lot require completely different lot sizes for the same dollar risk. Applying a forex formula to gold or indices without adjusting pip values produces wrong results — often dramatically over-sized positions.
Using the same risk % for all instruments
Volatile instruments like XAU/USD and NAS100 have wider average daily ranges and larger gap risk than major forex pairs. Consider reducing to 0.5% per trade on these instruments even if you normally trade 1% on EUR/USD.
Calculate Your Position Size Now
The TRADE90 calculator applies the correct pip value for 45+ instruments automatically. Enter your balance, risk %, and stop loss — get your exact lot size instantly.
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