Position sizing: how many lots should you trade?

You know how much you are willing to lose on a trade, say 1% of your capital. You know where to put your stop. One question is left: how many lots do you open so that, if the stop is hit, the loss matches exactly what you planned? That is position sizing, and it is the single most important step in risk management.

The formula

• Capital × Risk %: the maximum amount you are willing to lose, in your account currency.
• Stop in pips: the distance between your entry price and your stop loss.
• Pip value: what one pip makes or costs on one standard lot (100,000 units of the base currency), in your account currency.

The denominator, Stop in pips × Pip value, gives you the loss a full lot would take if the stop were hit. You then simply divide your risk budget by that loss to get the right fraction of a lot.

Example 1: EUR/USD on a dollar account

On EUR/USD, the quote currency is the dollar. For one standard lot, one pip (0.0001) is therefore worth 100,000 × 0.0001 = $10. On a dollar account, this is the simplest case: no conversion needed.

Double-check every time: multiply the size you got by the pip value, then by the stop distance. You should land back on your amount at risk. If you don't, one of your inputs is wrong.

Example 2: USD/JPY, when the pip value changes

On yen pairs, the pip is the second decimal place: 0.01. For one standard lot, one pip is worth 100,000 × 0.01 = 1,000 yen. To express it in dollars, divide by the exchange rate. At 150.00, 1,000 ÷ 150 gives about $6.67 per pip.

Example 3: gold (XAU/USD)

For gold, one standard lot is usually 100 ounces. At many brokers, the gold pip is set at $0.10, which gives 100 × 0.10 = $10 per pip for one lot. These conventions vary: always check the contract size in your broker's instrument specification.

Non-dollar accounts, rounding and practical cases

If your account is in euros, convert the pip value into your account currency. On EUR/USD at 1.0850, $10 is worth about €9.22. With €10,000, 1% risk and a 25-pip stop: 100 ÷ (25 × 9.22) ≈ 0.43 lots. Platforms often show the pip value directly in your account currency.

• Always round down: 0.437 lots becomes 0.43 lots, never 0.44.
• Check your broker's minimum step: 0.01 lots (a micro lot) at most forex brokers.
• If the result is below the minimum size, the stop is too wide for your capital: skip the trade.
• The spread adds to your real stop; on a very tight stop, it weighs heavily in the calculation.

The most common mistakes

The first mistake is mixing up pips and points. Many platforms show prices with one extra decimal, the pipette: on EUR/USD, 1.08503 has five decimals. A 25-pip stop then shows up as 250 points in some order windows. If you enter 250 in the formula instead of 25, your position will be ten times too small; the other way round, ten times too big.

The second mistake is forgetting your account currency. The $10-per-pip value only holds for pairs quoted in dollars and a dollar account. On EUR/GBP, a pip is worth £10 per lot, which you need to convert into euros or dollars depending on your account. The third mistake is working out a “standard” size once and never recalculating it, even though the stop distance changes on every trade.

Use the calculator above before every trade until the habit is automatic. After a few weeks, you will see that your losses all look alike, and that is exactly the goal: every losing trade costs you the same percentage, which lets you judge your method over time.