POSITION SIZING.

Most traders do this backwards. They pick a lot size first — "I'll trade one lot" — and then find a stop that fits their risk. That is not position sizing. That is guessing. The order is the other way round: risk percentage first, stop distance second, lot size third. This lesson shows the one formula that gets you there, on every instrument.

The one formula

Every position size on every instrument on every broker is calculated the same way. There is one formula, and if you know two of the three inputs you can solve for the third. Here it is, in its simplest form:

Every term in that formula has a specific meaning, and if any one of them is wrong the whole thing is wrong. Let's name them:

• Account — your account balance or equity, in your account currency. If you're trading in USD, this is the number you see next to "Balance."
• Risk % — the fraction of your account you're willing to lose on this one trade. Not the size of the position. Not the leverage. The amount you lose if the stop gets hit.
• Stop — the distance from your entry to your stop loss, measured in pips (forex) or points (indices). This is the number that decides the trade, not the size.
• Pip value per lot — how much one pip is worth per one standard lot, on the specific instrument you're trading. On EURUSD that's $10. On gold, $1. On US500 CFDs, usually $1 per point but it depends on your broker's contract size (see Lesson 1's broker check).

The formula outputs a lot size — the number of contracts or standard lots you place. You then round that number down (never up) to fit your broker's minimum lot step. Rounding up means risking more than you decided. Rounding down means risking a fraction less, which is always fine.

Worked examples across instruments

To make this concrete, here's the same risk budget — $100 — applied to three different instruments with three different stop sizes. Same risk, same account, three very different lot sizes.

Same $100 of risk on all three. Look at the differences:

Same risk in dollars. Very different lot sizes. Very different notional exposures. The number of lots is not the risk. The dollars are the risk. This is the single biggest misconception in retail trading — traders equate "one lot" with "safe" or "risky," but one lot on EURUSD and one lot on gold are not remotely the same size of bet.

Why the stop distance decides everything

Here's what surprises most beginners: the account balance barely matters in the formula above. What matters is the risk percentage and the stop distance. The account size only sets the dollar amount of your 1% — everything else is driven by the stop.

Change the stop and the lot size changes in lockstep, in the opposite direction. Here is the same $100 risk on EURUSD with three different stop distances:

This is why professional traders talk about the stop first and the size second. Once you decide where the trade is invalidated — where the market has proven you wrong — the size is arithmetic. You do not get to pick a bigger size because you "feel good" about the setup; the formula does not care how you feel.

Choosing your risk percentage

The risk percentage is the only number in the formula that is actually a choice. Everything else — account balance, stop distance, pip value — is a fact you look up or calculate. The risk percentage is the dial you turn, and where you set it decides how fast you can lose, and how much room you have to be wrong.

Here is what ten losses in a row does to a $10,000 account at each risk level. This is not a worst case — a 10-loss streak is a normal occurrence in every strategy that has ever been backtested. Every trader who has been at this for more than a year has had one:

For most retail traders, 1% is the natural home. It is what prop firms cap you at (FTMO is 5% daily, which at 1% per trade means five losing trades ends the day). It is what the math on streaks is designed around. Higher than 2% starts to compress the recovery math in ways that are hard to see until you are in a drawdown.

What changes with account size

Almost nothing, and this is the point. The risk percentage stays the same across account sizes. The dollar amount changes, but the position size formula scales linearly:

• $1,000 account, 1% risk = $10. With a 20-pip EURUSD stop, that's 0.05 lots.
• $10,000 account, 1% risk = $100. Same stop, 0.50 lots.
• $100,000 account, 1% risk = $1,000. Same stop, 5.00 lots.

Same percentage, same stop, ten-times the size as the account grows. The risk — as a fraction of the account — is identical. That is the whole point: a trader who risks 1% per trade is taking the same sized bet regardless of whether they have $1,000 or $100,000.

Where account size does matter is broker minimums. Most brokers have a minimum lot size of 0.01 (micro). If your formula outputs a number below 0.01, you cannot place the trade. On a $100 account with a 20-pip stop on EURUSD, 1% risk gives 0.005 lots — you cannot round that to 0.01 without exceeding your risk budget. So either the account is too small for the instrument, or the risk percentage needs to go down and the stop needs to be tighter. The formula always tells you the truth, even when the answer is "you cannot take this trade."

Two things to check:

• Minimal volume — the smallest lot your broker allows. If your formula outputs less than this, you either cannot place the trade, or you accept the minimum and therefore exceed your risk percentage.
• Volume step — how the lot size must round. Most brokers use 0.01, so a formula output of 0.334 rounds down to 0.33. Some use 0.10, which means 0.334 rounds down to 0.30. Always round down, never up — rounding up takes more risk than you decided to take.

When this fails

The formula is clean. Three things complicate it in practice: