Position Sizing: The Formula, Worked Examples and Why Traders Skip It

Volume is the single parameter that turns an abstract stop into a concrete loss. It has to be recalculated every time.

The formula

Volume = (Account × Risk %) / (Stop in pips × Pip value per lot)

Three steps:

1. Work out the acceptable loss in money.
2. Measure the stop distance in pips.
3. Divide the first by the second, then by pip value.

Example 1. EUR/USD

$2,000 account, 2% risk = $40. A 35-pip stop. Pip value per lot: $10.

Volume = 40 / (35 × 10) = 0.11 lots.

Example 2. USD/JPY

$5,000 account, 1% risk = $50. A 60-pip stop. Pip value per lot ≈ $6.5.

Volume = 50 / (60 × 6.5) = 0.13 lots.

Example 3. Gold

$3,000 account, 1.5% risk = $45. Stop is a $6 move (600 points). Point value per lot: $1.

Volume = 45 / (600 × 1) = 0.075, rounded down to 0.07 lots.

Always round down

Rounding up pushes risk above your limit — invisible on one trade, material over a hundred.

Why the step gets skipped

Because it demands a calculation before every entry, and the market moves while you do it. The fix is to know your strategy's typical stop distance in advance and keep a small table of sizes for two or three stop lengths. Then it takes seconds.

Run it automatically with the lot size calculator.

Read next

• The 1–2% risk rule
• Stop-loss placement
• Lot size explained