Risk Management
Position Sizing
Determining how much capital to risk on a single trade.
Full Definition
Position sizing is the process of determining the appropriate trade size based on your account balance, risk tolerance, and stop loss distance. Proper position sizing ensures no single trade can significantly damage your account. The most common approach is risking a fixed percentage (typically 1-2%) of your account per trade.
Example
With a $10,000 account risking 1% per trade, your max risk is $100. If your stop loss is 50 pips and pip value is $1, you can trade 2 mini lots ($100 ÷ 50 pips = $2 per pip).
Formula
Position Size = (Account Balance × Risk %) ÷ (Stop Loss in Pips × Pip Value)Related Terms
Apply Your Knowledge
Put this concept into practice with our free trading tools.