Professional traders don't decide how many lots to trade. They decide how much money they're willing to lose if they're wrong, and let the stop distance determine the size. That's position sizing, and it means every trade risks the same amount, whatever the instrument or setup.
The formula
Position size = (account × risk %) ÷ (stop distance × value per unit).
- Decide your risk per trade, usually 0.5% to 1% of the account.
- Place your stop where the trade idea is wrong (chapter 3).
- Measure the stop distance in pips, points or ticks.
- Divide the money at risk by the money each unit of stop distance costs.
Worked example: forex
Account $10,000. Risk 1% = $100. EUR/USD stop 25 pips. Value per pip per standard lot: $10.
Size = $100 ÷ (25 × $10) = 0.40 lots.
Worked example: futures
Account $50,000. Risk 0.5% = $250. NQ stop 30 points. NQ is $20 per point; MNQ is $2.
One NQ risks $600: too much. MNQ: $250 ÷ (30 × $2) = 4.2, so 4 MNQ (risking $240).
Worked example: gold
Account $25,000. Risk 1% = $250. XAU/USD stop $6. One lot (100 oz) moves $100 per $1.
Size = $250 ÷ ($6 × $100) = 0.41 lots (round down to 0.41 or 0.40).
How much to risk
Most professionals risk 0.25% to 1% per trade. That sounds small, but it's what lets you survive the losing streaks every strategy has (chapter 4). On prop firm evaluations, size from the daily loss limit too: you should be able to lose several trades in a row without touching it.
Key takeaways
- Decide the money at risk first, then let the stop distance set the position size.
- Position size = (account × risk %) ÷ (stop distance × value per unit).
- Most professionals risk 0.25% to 1% of the account per trade.
- Round size down, and on prop accounts size from the daily loss limit as well.