How the calculation works
Position sizing turns a rule ("I lose at most 1% on a trade") into a number of lots. The stop comes first, from the chart; the size follows from it.
One standard forex lot is 100,000 units of the base currency. A pip is 0.0001 (0.01 on pairs quoted in yen), so one pip on one lot is worth 10 units of the quote currency (1,000 yen on JPY pairs). The calculator converts that into your account currency, which is why some pairs ask for a price:
Example 1: EUR/USD, USD account
Balance $10,000, risk 1% = $100. Entry 1.0880, stop 1.0850 = 30 pips. The quote currency is USD, so a pip on one lot is $10. Size = $100 / (30 × $10) = 0.333, rounded down to 0.33 lots. If the stop is hit: 30 × $10 × 0.33 = $99.
Example 2: USD/JPY at 150.00, USD account
A pip on one lot is 1,000 yen. Your account is in dollars, the pair's base, so divide by the price: 1,000 / 150 = $6.67 a pip. With $100 at risk and a 25-pip stop: $100 / (25 × $6.67) = 0.60 lots.
Example 3: EUR/GBP, USD account (a cross)
A pip on one lot is £10. Neither currency of the pair is yours, so it needs the GBP/USD price: at 1.2700, £10 = $12.70 a pip. The calculator names the pair it needs for every combination.
Example 4: Gold (XAU/USD)
One lot is 100 ounces, so a $1.00 move in the price is $100 per lot. Brokers disagree on what a gold "pip" is (0.01 or 0.10), so enter the stop as a price distance: entry 2,400.00, stop 2,395.00 = 5.00. With $100 at risk: $100 / (5.00 × $100) = 0.20 lots.
Why the risk percentage matters more than the entry
Every strategy has losing streaks. Ten losses in a row, each risking the same share of the current balance, cost:
| Risk per trade | Balance lost after 10 losses | Gain needed to get back |
|---|---|---|
| 0.5% | 4.89% | 5.1% |
| 1% | 9.56% | 10.6% |
| 2% | 18.29% | 22.4% |
| 5% | 40.13% | 67.0% |
| 10% | 65.13% | 186.8% |
Position sizing decides how much a loss costs. It does not make a strategy profitable, and it does not make losses less likely. Its job is to keep you in the game long enough for your edge, if you have one, to show. The losing streak calculator gives the exact odds of a streak for your own win rate, and the risk of ruin calculator the chance of reaching your drawdown limit. Module 1 of the Masterclass teaches the full routine, with exercises on a demo account.
Questions
- Should I round the lot size up or down?
- Always down, to the lot step your broker allows (usually 0.01). Rounding up means the loss at your stop is bigger than the limit you set.
- What if the result is 0 lots?
- Then even the smallest lot would lose more than your limit at that stop. Skip the trade. Do not tighten the stop to make the size fit: the chart sets the stop, not your account size.
- How much should I risk per trade?
- A common guideline is 0.5% to 2% of the balance; the Masterclass uses 1%. The table above shows why: at 1%, ten losses in a row cost 9.56%; at 5% they cost 40.13%.
- Does commission change the size?
- Yes. A $7 round-trip commission per lot is paid on top of the stop loss, so it is added to the loss per lot before dividing. On a 20-pip EUR/USD stop with $100 at risk, that moves the size from 0.50 to 0.48 lots.
- Can I lose more than the amount at my stop?
- Yes. A stop-loss becomes a market order when it is touched. If price gaps past it, the fill and the loss can be worse than planned.