Glossary
Position Sizing
Deciding how large a trade to take so that a loss costs a fixed, pre-planned amount.
Position Sizing, explained
Position sizing is the process of choosing your lot size so that hitting your stop loss costs only a set percentage of your account — commonly 0.5% to 2%. It is arguably the single most important risk skill, ahead of entries themselves.
The method is mechanical: decide your risk in dollars, measure your stop distance in pips, find the pip value, then size the position so stop distance times pip value equals your dollar risk. The wider the stop, the smaller the position — and vice versa.
Sizing as a fixed percentage of the current account (rather than a fixed dollar amount) makes risk self-adjusting. After losses the dollar risk shrinks automatically, slowing the bleed in a drawdown; after gains it grows, compounding the account. This single rule is what keeps a losing streak survivable.
Consistent sizing turns a string of losses into a survivable drawdown rather than a blow-up, and it stops a single oversized trade from erasing weeks of disciplined work. Ten straight losses at 1% risk costs about 10% of the account; ten at 'whatever feels right' can end it.
On the desk, position sizing is where the trader does the real work — we provide the entry, stop and target, but only you know your account size and risk tolerance. Plugging those into the formula is the step that makes a shared signal safe to follow.
Frequently asked questions
- How much should I risk per trade?
- Most professionals risk 0.5%–2% of the account on a single trade. Lower is safer through a losing streak; the key is keeping it fixed and consistent rather than varying it by how confident you feel.
- Should I risk a fixed dollar amount or a fixed percentage?
- A fixed percentage of the current balance is generally better: it shrinks risk automatically during drawdowns and grows it as the account compounds, which protects you when you most need it.
Related terms
Lot Size
How many lots (units) you trade on a position — the lever that converts a pip move into account dollars.
ReadPip Value
What a single pip is worth in money — it depends on the pair and your position size.
ReadDrawdown
The peak-to-trough decline in your account — how far you fall from a high before making a new one.
ReadRisk-Reward Ratio
How much you stand to make versus how much you risk on a trade — the core of long-term profitability.
Read
Put it into practice
Education modules
More terms in the glossary.
Vocabulary is the easy part. See how the desk turns these concepts into structured trades with defined risk on every position.