Position size calculator: formula and worked example

Why position size is calculated

Position size is not chosen by feel: it comes from the amount you are willing to lose. That way every trade weighs the same on your account, no matter how wide the stop loss is.

The formula

Size (in lots) = money at risk / (stop loss in pips x value of 1 pip per lot)

Example

5,000 euro account, 1% risk = 50 euros. Stop loss at 25 pips on EUR/USD. The value of 1 pip is about 10 per standard lot.

Size = 50 / (25 x 10) = 0.2 lots, that is 2 mini lots or 20 micro lots. If the stop were at 50 pips, size would halve to 0.1 lots.

Practical rules

• Many traders risk between 0.5% and 2% of the account per trade
• Place the stop where the trade idea is invalidated, not where it suits your size
• If the stop is wide, reduce size; don't tighten the stop
• Pip value varies with the pair and your account currency: check your broker's figure

Calculator

Enter your numbers. The result is indicative and does not account for spread and commissions.