Risk concept

Position Sizing

Deciding how large a trade to take so that a loss costs only a fixed, small percentage of your account.

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What it is

Position size is calculated from three things: your account risk (e.g. 1% of the account), the distance to your stop-loss, and the value per pip/point. Size = risk amount ÷ (stop distance × value per unit). It is derived from the stop, never a fixed lot.

What it signals

Correct sizing keeps any single loss survivable and makes results consistent — the same 1% risk whether the stop is tight or wide. It is what keeps a losing streak from ending the account.

How to spot it

Set the percentage you will risk per trade first, place your stop based on the chart (not on the size you want), then compute the size that makes that stop equal your chosen risk.

One caveat

Never widen risk to chase a bigger position, and account for spread, slippage and correlated trades. Sizing is mechanical — it should never be overridden on a 'sure thing'.

Related terms

Risk-Reward RatioTrendMarket StructureSupport & Resistance

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