Risk & Money Management
Beginner
Position Sizing
Also called: sizing, money management
The process of choosing how many lots to trade based on your account size, stop distance, and risk per trade.
Definition
Position sizing is what turns a ‘maybe’ edge into a sustainable equity curve. Risk a fixed percent of equity (typically 0.5–2%) per trade and size each trade so the stop-loss equals that risk in dollars.
Without proper sizing, even a great strategy can blow up — one oversized trade can wipe out months of gains.
Example
Account $10,000, risk 1% = $100. Stop 25 pips on EUR/USD ($10/pip per lot). Lots = $100 / (25 × $10) = 0.4.
Formula
Lots = (Equity × Risk%) / (Stop distance in pips × Pip value per lot)