How to Calculate Position Size (Formula, Example, Common Mistakes)
The position-size formula from risk budget and stop distance, one worked example in dollars, and the mistakes — rounding up, skipping fees — that quietly break it.
Position size is an output, not a choice
Most sizing mistakes come from doing it backwards: picking a size that feels right, then checking whether the loss is acceptable. The arithmetic runs the other way. You declare how much of the account one losing trade may cost, you measure how far your stop is from your entry, and the size falls out of the division. Nothing about it is a judgment call.
The formula is four operations:
- Risk budget = account equity × risk percent
- Stop distance = |entry price − stop price|
- Risk per unit = stop distance × contract size
- Position size = risk budget ÷ risk per unit
A worked example
Account equity $10,000, risk 1% per trade, so the budget is $100. EUR/USD entry 1.0840, stop 1.0790 — a distance of 0.0050 (50 pips). One standard lot is 100,000 units, so the risk per lot is 0.0050 × 100,000 = $500.
Size = $100 ÷ $500 = 0.20 lot. If your broker's minimum step is 0.01, that is exactly tradable. If the division had produced 0.237, the correct size is 0.23 — truncated, never rounded up. Rounding up produces a position whose planned loss exceeds the budget you just declared, which defeats the entire exercise.
The mistakes that break the formula
The formula is simple; the failures are all in the inputs.
- Sizing from balance instead of equity while positions are open — the budget is computed from money that is already at risk.
- Rounding the size up to the next step instead of truncating down.
- Ignoring fees and slippage: a 0.20-lot trade with commission on both ends and one pip of slippage loses more than the stop distance implies. The all-in loss is the honest number.
- Using the forex contract size for other instruments. A gold lot is 100 ounces, not 100,000 — the same formula with the wrong multiplier reports a loss a thousand times too small.
- Widening the stop after entry without recomputing. The stop moved; the size that was compliant no longer is.
From formula to full check
The four-line formula answers one question: what size fits this budget. It does not know your account's rules — a daily loss limit, a maximum exposure, a prop firm's drawdown — and it does not price gaps or fees. Running the same trade through a full review adds those: the all-in planned loss with costs, the rule conflicts, and the maximum compliant size when the one you typed does not fit.
Run the numbers yourself
Review a real trade with rules and costsCommon questions
What percentage should the risk budget be?
That is a rule you set, not a number a calculator can hand you. What arithmetic can show is the consequence: ten consecutive 1% losses draw the account down about 9.6%, while ten 5% losses draw it down about 40% — and a 40% drawdown needs roughly a 67% gain to recover. Pick the number whose worst streak you can actually sit through.
Do I size from balance or equity?
Equity. Open positions are money already exposed; a budget computed from balance double-counts capital you may be about to lose.
Why truncate instead of round?
Because the budget is a ceiling. 0.237 rounded to 0.24 plans a loss above the ceiling; truncated to 0.23 it stays under. The half-step of size you give up is the price of the rule meaning something.
Maximelion is decision support, not financial advice. It does not predict markets, recommend trades, or guarantee outcomes. All figures on this page are arithmetic examples, not recommendations.