Position Sizing is the decision of how much capital to risk on a single trade, typically expressed as a percentage of total account equity. It determines the lot size or share count that translates a fixed-percentage risk into a concrete order size given the current stop distance. After edge itself, position sizing is the most consequential decision a trader makes — two traders with identical strategies can produce wildly different outcomes purely from how aggressively they size, and oversizing is the single most common cause of blown accounts.
Formula
Position Size (units) = (Account Equity × Risk Percent) / (Stop Distance × Pip Value)
Where Risk Percent is the fraction of equity you are willing to lose on the trade (e.g. 0.01 for 1%), Stop Distance is the price distance from entry to stop in pips or points, and Pip Value is the dollar value of one pip per unit traded for the instrument.
Worked example
Account equity is $10,000. You risk 1% per trade, equal to $100. You are trading EURUSD with a 25-pip stop. Pip value is $10 per standard lot (100,000 units).
Position Size = $100 / (25 × $10) = $100 / $250 = 0.40 standard lots
You enter 0.40 lots — 40,000 units of EURUSD. If stopped out, the loss is exactly $100; if the trade hits a 50-pip target, the gain is $200, a 2R outcome.
Why it matters
Fixed-fractional position sizing means losing streaks shrink lot sizes automatically (1% of a smaller equity is fewer dollars), which is the mathematical reason small accounts can survive long drawdowns without ruin. Use the position size calculator to size every trade — relying on instinct or repeating "the same lot size as last time" is how accounts blow up.
Common pitfalls
The most common mistake is sizing off the original account balance instead of current equity, so risk per trade silently grows during a winning streak and stays oversized during a losing one. Also: pip value differs by instrument, account currency, and pair quote convention — verify it for each symbol rather than assuming.