How position sizing works
Position sizing flips the usual question on its head. Instead of asking how many lots you feel like trading, you decide the loss you are willing to accept first, then let the math hand you the size. Your loss is fixed and planned; the lot size simply falls out of it. This is the habit that separates traders who last from traders who blow up on a bad week.
The formula
Lots = Money at risk ÷ (Stop-loss in pips × Pip value per lot)
Say you have a 10,000 USD account and risk 1 percent, so 100 USD is on the line. Your stop is 30 pips away and you are trading a USD-quoted pair where one pip is worth 10 USD per standard lot. That gives 100 ÷ (30 × 10) = 0.33 lots. If the stop is hit you lose 100 USD, exactly as planned.
Why 1 to 2 percent is the sweet spot
Risk too little and a real edge barely moves your account. Risk too much and a normal losing streak ruins you before the edge can pay off. The table shows how many losing trades in a row it takes to halve an account at different risk levels.
| Risk per trade | Losses to drop 50% | Verdict |
|---|---|---|
| 1% | ~69 trades | Very durable |
| 2% | ~34 trades | Sensible |
| 5% | ~14 trades | Aggressive |
| 10% | ~7 trades | Fragile |
Every strategy we publish is sized at 2 percent risk per trade for exactly this reason. You can read how we test and size setups on the methodology page, then check the value of a pip for your specific pair with the pip calculator.