DEFINITION
Position Sizing
The process of determining how many units, lots, or contracts to trade based on account size, risk per trade, and stop loss distance. Proper position sizing is the foundation of risk management.
In depth
Formula: position size = (account × risk%) / (stop distance × pip value). Always size from the stop, never from the target. Inconsistent position sizing is the #1 reason discipline scores collapse.
Related terms
Risk per Trade
The percentage of account capital risked on a single trade. Conservative traders risk 0.5–1%. Standard risk management caps at 2% to survive losing streaks.
Stop Loss
A pre-defined price level at which a losing trade is closed automatically. The foundation of risk management — trading without a stop loss exposes the account to unlimited risk.
Lot Size
The standardized volume unit for forex trades. A standard lot = 100,000 units. Mini lot = 10,000. Micro lot = 1,000. Lot size multiplied by pip value determines dollar risk per pip.
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