Knowing you should risk 1 percent is useless until you can turn it into a lot size. Forex position sizing is the step that does exactly that. Learn it once and you never again have to guess how big a trade should be, because the answer stops being a matter of opinion.
01 The formula
Everything in position sizing comes from one line. Your position size is the amount you are willing to lose, divided by how much you lose per unit if the stop is hit.
The top of that fraction is a decision you already made in the last lesson. The bottom comes from the chart and the pair. Nothing here requires judgement in the moment, which is exactly the point.
02 The three inputs, in order
Work through them in this sequence. Changing the order is how people end up talking themselves into trades that are too big.
First, your risk amount: account balance multiplied by your risk percent. On 4,000 US dollars at 1 percent, that is 40 US dollars. Second, your stop distance in pips, taken from where the chart says your idea is wrong. Third, the pip value for the pair and lot size you are trading. For most pairs quoted against the US dollar, one pip is about 10 US dollars per standard lot, 1 US dollar per mini lot and 10 cents per micro lot.
If you want the underlying detail on lots and leverage, that is covered in Lots, Leverage and Margin in Level 1.
03 Same risk, different stop, different size
Here is the part that surprises people. Two trades with identical risk can have completely different position sizes, because the stop distance changes what one unit costs you.
Both trades lose 40 US dollars if they are wrong. The wider stop simply requires a smaller position to keep that true. This is why a wide stop is not automatically riskier than a tight one, and why "I only trade one lot" is not a risk policy.
Account 6,500 US dollars, risk 1 percent, so 65 US dollars is at stake. You are trading EUR/USD and structure puts your stop 32 pips away. A mini lot is worth about 1 US dollar per pip, so 32 pips costs about 32 US dollars per mini lot. 65 divided by 32 is roughly 2.0, so you trade 2 mini lots, which is 0.2 of a standard lot. If the stop is hit you lose about 64 US dollars, just inside your limit. Round down, never up.
Deciding the lot size first and then moving the stop to make the numbers work. This inverts the whole method. The chart decides the stop, your rule decides the risk, and the position size is whatever falls out of those two. If the resulting size is uncomfortably small, the honest answer is that the account is small, not that the stop is wrong.
- Account 10,000 US dollars, risk 1 percent, stop 50 pips, pip value 1 US dollar per mini lot. What size do you trade?
- Your stop doubles from 30 to 60 pips. What happens to your position size?
- Which of the three inputs comes from the chart rather than from you?
Show answers
1) 100 divided by 50 equals 2 mini lots. 2) It halves, so the money at risk stays the same. 3) The stop distance.
- Position size equals your risk amount divided by stop distance multiplied by pip value.
- Work the inputs in order: risk amount, then stop distance, then pip value.
- A wider stop means a smaller position for the same money at risk. Wide stops are not inherently riskier.
- Round down. Never stretch a stop to justify a size you have already decided on.
Divide the money you are willing to lose by your stop distance in pips multiplied by the pip value for that pair. The result is your position size in lots. A calculator does it instantly, but do it by hand a few times so the relationship sticks.
Yes, and it is the main thing that does. For a fixed risk amount, position size and stop distance move in opposite directions. Double the stop and you halve the size.
Then the trade is too big for your account at that stop distance. Either find a setup with a tighter sensible stop, or accept that the account needs to grow first. Trading the broker's minimum anyway means abandoning your risk rule.
Further reading: Trading operations in MetaTrader 5, the official MetaQuotes documentation on volume, order types and how the platform handles execution.
Skip the arithmetic with the free Position Size Calculator