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Position Sizing Explained: How Much Should You Risk Per Trade?

The formula, broken down with a clearly labelled worked example — the one calculation every trade actually depends on.

Written By

Karolina Hansen

Published 28/09/2026 · Updated 28/09/2026 · 3 min read

ForexGold

Key Takeaways

Position size comes out of the formula last, not first. Pick the lot size before doing the math and the number you end up risking is basically a guess.
The same general formula applies across markets — only the monetary value per pip, point, or unit changes, and that value comes from the instrument's contract specification.
Getting this wrong is one of the more common ways traders end up risking more than they realise on a given trade.
Recalculate for every trade using your current balance — don't reuse a fixed lot size regardless of how the account has moved.

Position sizing answers one specific question: how many lots or units can you trade so that if your exit is triggered, you lose the amount of risk you decided on in advance — not a random amount that depends on how far away your stop happened to be. The general principle is: position size = risk amount ÷ monetary loss per unit at your chosen stop distance. In pip/point terms that's Position Size = (Account Balance x Risk %) ÷ (Stop-Loss Distance x Pip/Point Value) — but the pip or point value itself depends on the instrument, contract size, and account currency, so always confirm it in your own platform before sizing a real trade.

The Formula, Broken Down

Account Balance

Your actual current equity, not your starting deposit

Risk Amount

Decided in advance, according to your own tested framework

Stop-Loss Distance

From your strategy's rules — a defined level, not a guess

Pip/Point Value

Varies by instrument, contract size, and account currency

A Worked Example

One worked example, using clearly labelled illustrative numbers — the same principle applies to any account size or instrument, but the pip or point value must come from your actual contract specification, not an assumption.

Step	Illustrative Value
Account balance	$2,000
Illustrative risk (1% — example only)	$20
Stop distance	30 pips
Assumed value at 1 standard lot	$10 per pip
Position size	20 ÷ (30 × 10) = 0.0667 standard lots

This is one illustrative example using 1% risk — not a universal recommendation. Actual pip/point value depends on the instrument, contract size, account currency, and broker specification — always confirm it in your own platform before sizing a real trade.

Sizing the Position Backwards

Working backwards — picking a lot size that 'feels' appropriate, then discovering after the fact how much was actually at risk — is one of the more common position sizing errors, and one of the easiest to fix once you see it. It's backwards specifically because it makes your real dollar risk a byproduct of a feeling, rather than a deliberate, calculated decision made before the trade existed.

Pros

Risk amount decided first, position size calculated from it
Stop-loss distance comes from the strategy's rules
Recalculated for every single trade using current balance

Cons

Lot size picked first, risk discovered afterward
Stop widened to justify a position size already chosen
Same fixed lot size reused regardless of account changes

Why This Is Worth Getting Right Early

Unlike entry timing or market analysis, position sizing is close to pure arithmetic — there's little skill or prediction involved, just a calculation. That makes it one of the more fixable risk mistakes, and yet one many traders never get around to fixing, because it's invisible on any single trade and only shows up as a pattern across many.

Log your calculated position size for every trade in your Journal and check it against what you actually traded.

Start logging your calculated position size in TG Journal.

Create Your Free Account

Download the Position Size Worksheet and calculate your exact risk before every trade.

Get the Worksheet

Frequently Asked Questions

No — a simple spreadsheet or the worksheet linked above is enough. Many platforms also have a built-in calculator once you know the formula behind it.

Because your stop-loss distance changes trade to trade based on your strategy's rules — a wider stop means a smaller position size for the same dollar risk, and vice versa.

The general formula is identical — only the pip or point value differs by instrument. Gold's contract size and point-value conventions can vary by broker or platform, so confirm the specification in your own platform rather than assuming it's larger or smaller than a forex pair's.

Educational content only — not financial advice. Trading involves risk, and past performance does not guarantee future results.

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