How to calculate position sizing in trading (with examples)

Position sizing — how much you buy/sell on every trade — is the single decision with the biggest impact on your account. More than the entry setup, more than the stop loss, more than the HTF trend. A strategy with minimal edge plus impeccable position sizing wins. A genius strategy plus wrong size equals blow-up.

This guide teaches you the exact formula to calculate the right lot size based on your risk, with examples on Forex, indices and gold.

The base rule: risk 0.5%-1% per trade

The maximum risk per trade is the first thing to define. Standard guidelines:

• Beginner: 0.5% per trade. Gives room for 200 trades without blowing the account.
• Intermediate (tested system): 1% per trade. Industry standard.
• Advanced (robust system, known drawdown): 1-2% per trade. Only if you have backtests of 500+ trades showing max DD < 15%.
• Never above 2%: even top institutional traders stay below this.

On a €10,000 account:

• 0.5% = €50 max risk per trade
• 1% = €100
• 2% = €200

The position sizing formula

The universal formula is:

Lots = (Risk in $) / (Stop Loss in pips × Pip value per lot)

You need 3 inputs:

1. Risk in $: % risk × capital. E.g. 1% of €10,000 = €100.
2. Stop loss in pips: distance between entry and SL.
3. Pip value per standard lot: depends on the instrument.

Pip values for major instruments

For 1 standard lot (100,000 units):

• Forex majors (EURUSD, GBPUSD, AUDUSD, etc.): 1 pip = $10
• JPY pairs (USDJPY, EURJPY, etc.): 1 pip = ~$8 (varies with the JPY/USD rate)
• EUR crosses without JPY (EURGBP, EURCHF): 1 pip ≈ €10
• XAU/USD (Gold): 1 pip = $1 (pip = 0.01)
• XAG/USD (Silver): 1 pip = $5 (pip = 0.001)
• US500 (S&P 500 CFD): 1 point = $5-10 depending on broker
• US100 (NASDAQ 100 CFD): 1 point = $5-10
• BTC/USD: depends on broker, typically 1 lot = 1 BTC, 1 point = $1

Example 1: Forex major (EURUSD)

• Capital: €10,000
• Risk per trade: 1% = €100
• Stop loss: 30 pips
• Pip value for 1 lot of EURUSD: $10 (~€9)

Lots = 100 / (30 × 9) = 0.37 lots

So you open 0.37 lots (37 micro lots). If SL is hit: -30 pips × 0.37 × €9 ≈ -€100 ✓

Example 2: JPY pair (USDJPY)

• Capital: €10,000
• Risk: 1% = €100
• Stop loss: 25 pips (e.g. entry 150.20, SL 149.95)
• USDJPY pip value for 1 lot: ~$8 (with USDJPY at 150)

Lots = 100 / (25 × €7.50) = 0.53 lots

Open 0.53 lots. SL hit: -25 pips × 0.53 × €7.50 ≈ -€99 ✓

Example 3: Gold (XAU/USD)

• Capital: €10,000
• Risk: 1% = €100
• Stop loss: 5 dollars (e.g. entry $2,350, SL $2,345)
• 1 lot of gold = 100 ounces. 1 dollar move = $100 per lot.

Lots = 100 / (5 × €100) ≈ 0.20 lots

Open 0.20 lots. SL hit: -$5 × 0.20 × 100 = -$100 ≈ -€95 ✓

Note: gold moves fast. A 5-dollar SL on the daily is tight. Typically you need 10-15 dollars.

Example 4: Indices (S&P 500)

• Capital: €10,000
• Risk: 1% = €100
• Stop loss: 8 points
• 1 point on S&P 500 = $5 (typical broker)

Lots = 100 / (8 × €4.50) ≈ 2.78 lots

On indices, "lots" are often expressed as mini-contracts. Check with your broker for the exact specification.

Common position sizing mistakes

1. Using the same size for every trade

The #1 beginner mistake. You always open 1 lot, ignoring the SL. Result: on some trades you risk 0.3%, on others 4%. You need to calibrate size based on the SL, not the other way around.

2. Increasing size after a loss ("recovery")

You lost 2 trades at 1%. You open the next one with 3% to "recover". Three losses in a row and you're at -5% in a single day. Mathematically guaranteed to fail.

3. Underestimating JPY pips

On EURUSD 1 pip = 0.0001. On USDJPY 1 pip = 0.01 (because JPY has 2 decimals, not 5). If you calculate a 30-"pip" SL with the wrong decimals, you're off by 10x.

4. Ignoring correlations

You open 3 trades on EURUSD, EURJPY, EURGBP. You think it's 3% total risk. In reality they're 80%+ correlated — if EUR drops, you lose all 3 together. Real risk ~7-8%.

5. Ignoring spread/commission

The effective SL isn't just "pips from entry". It includes spread (1-2 pips) + commission. If you calculate on 30 clean pips, you actually lose 33 pips in reality.

Sizing for multi-pair trading

If you trade multiple instruments simultaneously, risk adds up. Recommended limits:

• Max 2-3 trades open simultaneously
• Max 3% total open risk (if you risk 1% per trade)
• Never 2 trades in the same direction on correlated pairs (e.g. EURUSD + EURGBP both long)

Dynamic position sizing

Advanced traders reduce size after losses and increase after wins, to modulate risk based on the state of the account:

• Account at +5% from initial balance: standard 1% risk
• Account at -3% (drawdown): risk reduced to 0.5%
• Account at -5%: trading paused, strategy review
• Account at +10%: optional increase to 1.2% (with caution)

This approach is called anti-martingale. It reduces risk in the worst moments, increases it in the best. Statistically improves account survival.

Position sizing and prop firms

On prop firms like FTMO, position sizing is even more critical:

• FTMO max daily DD 5% → risk 0.5% per trade (max 2 consecutive 1% losses before breaching DD)
• $100k account: max risk per trade $500
• With 20 pip SL on EURUSD: 2.5 standard lots

See our complete guide to passing FTMO to apply these numbers.

In summary

• Risk 0.5%-1% per trade. Always. Never above 2%.
• Formula: Lots = Risk$ / (SL pips × Pip value)
• Know the pip value for every instrument you trade
• JPY pairs: pip = 0.01, not 0.0001
• Indices/commodities: depend on the broker, verify
• Don't increase size after losses (no martingale)
• Consider correlations (multi-pair = combined risk)
• On prop firms: halve the standard size

Position sizing is boring but fundamental. Three minutes of calculation before every trade saves your account.