Position size decides what a losing trade costs you, so it is the risk control you set on every trade. You work it out from two numbers fixed before entry: the dollars you accept losing if the stop is hit, and the distance from your entry to that stop.
What you will learn
- The position sizing formula, step by step
- How to pick a risk per trade that fits the Classic and Direct limits
- Worked examples on $10K, $25K, $50K and $100K accounts
- What leverage and trading costs change, and what they leave alone
Start with the dollars you will risk
Set your risk per trade as a percentage of your starting balance, then turn it into dollars. On a $10,000 account, 0.5% is $50 and 1% is $100. On $100,000 the same percentages are $500 and $1,000.
Use the starting balance: the maximum loss is set from it, and so is the daily limit on the first day. You can then count how many full losses each limit allows:
- On Classic $10K at 1% risk ($100 a trade), the fifth full loss in one day reaches the $500 daily limit, and ten straight losses reach the $9,000 floor.
- On Direct $10K at 1% risk, the fourth loss in a day reaches the $400 daily limit, and six straight losses reach the $9,400 floor.
- At 0.5% risk those counts double, to 10 and 20 on Classic and 8 and 12 on Direct.
On Direct, 1% leaves little room, because six losses in a row end the account. Lesson 3 shows how often a run like that turns up.
The position size formula
Position size = dollar risk ÷ (stop distance × value of a one-unit move for one lot)
A unit is a pip in forex (0.0001 on most pairs) or a point on an index. A lot is a standard trade size. Work through the formula in this order:
- Dollar risk is your starting balance × your risk per trade.
- Stop distance runs from your entry to the price that proves the trade idea wrong. Read it off the chart, and never shrink it to fit a bigger size.
- Value per unit comes from the symbol. For pairs quoted in US dollars, such as EUR/USD, one standard lot is usually 100,000 units, so one pip is worth $10 a lot. Contract sizes vary, so check the symbol's details on Match-Trader.
- Divide, then round down to the nearest size the platform accepts.
Set the stop first and let the size follow. With $50 at risk on EUR/USD, a 10-pip stop allows 0.50 lots and a 50-pip stop allows 0.10 lots. The loss at the stop is $50 in both cases.
Worked examples on each account size
These examples use $10 a pip for one lot of EUR/USD. The index example uses US500cash, where one lot is worth $0.50 a point (a move of 1.0) on CMC Funded, with volume in whole lots; check the real figure for your symbol.
$10K Classic at 0.5% risk
Dollar risk is $50 and the stop is 20 pips. Size = 50 ÷ (20 × 10) = 0.25 lots. Check it backwards: 0.25 lots is worth $2.50 a pip, and 20 pips of that is $50.
$25K Direct at 0.5% risk
Dollar risk is $125 and the stop is 25 pips. Size = 125 ÷ (25 × 10) = 0.50 lots. That is $5 a pip, and 25 pips cost $125.
$50K Classic at 1% risk, on an index
Dollar risk is $500 and the stop is 60 points. Size = 500 ÷ (60 × 0.50) = 16.67 lots, rounded down to 16. Your actual risk is 16 × $0.50 × 60 = $480.
$100K Direct at 0.5% risk
Dollar risk is $500 and the stop is 35 pips. Size = 500 ÷ (35 × 10) = 1.428 lots, rounded down to 1.42 if the platform takes steps of 0.01. Your actual risk is 1.42 × $10 × 35 = $497.
Rounding down keeps your actual risk at or below your plan. The position size calculator does this arithmetic for you, but work a few by hand first so you can spot a wrong input.
What leverage changes
You choose leverage when you buy a challenge, from 1:10 to 1:500. Leverage sets how much margin (the amount set aside to keep a position open) a trade needs, and it plays no part in the sizing formula.
Suppose EUR/USD is at 1.1000. One lot is then worth about $110,000, so at 1:100 it needs about $1,100 of margin and at 1:10 about $11,000. High leverage lets you open far bigger positions than your risk plan allows, so take the size from the formula and never from the margin you have free. Higher leverage magnifies both gains and losses. The margin calculator shows the margin for a symbol at each leverage.
Costs come out of the same budget
Simulated trades carry trading costs, as they would on a live account: a commission when a trade opens and when it closes, a price markup on some symbols, and holding costs on positions kept overnight. These come off your simulated balance and count towards your loss limits, so a full stop-out costs a little more than the dollar risk you planned.
In a fast market, or when price gaps over a weekend, a stop can also fill beyond its level. Round down, and treat your risk figure as a ceiling.
Check your understanding
1. You trade a $25,000 Classic account, risk 1% a trade and want a 30-pip stop on EUR/USD at $10 a pip a lot. What size do you open?
Dollar risk is $250. Size = 250 ÷ (30 × 10) = 0.833, rounded down to 0.83 lots, which risks $249.
2. On a $10,000 Direct account at 1% risk, how many straight full losses reach the floor?
Six. Each one costs $100 and the floor is $600 below the starting balance, so the sixth loss takes equity to $9,400.
3. You move from 1:100 to 1:500 leverage. Does your position size change?
No. The size comes from your dollar risk and your stop distance. Leverage only changes the margin the position needs.
Key points
- Fix your risk per trade in dollars before you think about size.
- Position size = dollar risk ÷ (stop distance × value per pip or point for one lot).
- Set the stop from the chart, let the size follow, and round down.
- At 1% risk, a Direct $10K account allows six straight losses before the floor. At 0.5%, it allows twelve.
- Leverage changes only the margin a trade needs. Trading costs count towards your limits.
Next lesson: Judge a strategy by R multiples and expectancy
All trading is simulated. Rewards are based on performance and are not guaranteed.