Position Sizing 101: How Big Should a Trade Be?

Position sizing is the process of deciding how large a trade should be — and it’s arguably more important to long-term results than picking the “right” entry point.

The three inputs you need

To size a position correctly, you need three numbers: your account balance, the percentage of it you’re willing to risk (see our 1% rule guide), and the distance in pips between your entry price and your stop loss.

The basic calculation

First, calculate your dollar risk: account balance × risk percentage. Then divide that dollar amount by the stop loss distance in pips to find your risk per pip. From there, you can work out the lot size that matches that per-pip value.

A simple example

With a $2,000 account risking 1% ($20) and a 20-pip stop loss, you need a position where each pip is worth $1 — roughly a mini lot (0.1 lots) on most major pairs. A tighter 10-pip stop with the same $20 risk would allow a larger position, since each pip needs to be worth $2 instead.

Why this matters more than “picking winners”

Even a strategy with a good win rate can blow up an account if position sizes are inconsistent or too large. Correct position sizing means a string of losses shrinks your account gradually and predictably, rather than catastrophically.

Key takeaway

Position size should be the output of a calculation based on your risk tolerance and stop loss — not a gut feeling or a round number that “feels right.”