The formula that protects your account on every trade
Position sizing is the most important calculation you'll make as a trader. It answers a simple question: how many lots should I trade so that if this trade hits my stop loss, I only lose a predetermined percentage of my account?
Professional traders risk 1-2% of their account per trade. That means if you have a $5,000 account and you risk 1%, the maximum you'll lose on any single trade is $50. This sounds small — and that's the point. Small, controlled losses are survivable. Large, uncontrolled losses end careers.
At 1% risk per trade, you can lose 20 trades in a row and still have over 80% of your account intact. At 5% risk per trade, 20 losses in a row leaves you with 36% — a hole you'll likely never climb out of.
Position Size Calculation (Gold)
Lots = (Account × Risk%) / (SL in pips × $1)
Account=Your total account balance in USD
Risk%=Percentage you're willing to risk (0.01 for 1%, 0.02 for 2%)
SL in pips=Distance from entry to stop loss in pips
$1=Pip value per standard lot on gold (1 pip = $1 per 1.0 lot)
| Account | Risk % | Stop Loss | Dollar Risk | Lot Size |
|---|---|---|---|---|
| $2,000 | 1% | 80 pips | $20 | 0.25 lots |
| $5,000 | 1.5% | 100 pips | $75 | 0.75 lots |
| $10,000 | 1% | 50 pips | $100 | 2.0 lots |
| $10,000 | 2% | 80 pips | $200 | 2.5 lots |
Calculate your position size BEFORE every trade, without exception. Never eyeball it. Never use the same lot size every time regardless of stop distance. If your stop is wider, your position size must be smaller — and vice versa.
A 1:1.5 risk-to-reward ratio — risking 1R to make 1.5R
Your risk-to-reward ratio (R:R) determines how much you aim to make relative to what you're risking. A 1:1.5 R:R means you risk $100 to make $150. This matters because of the math:
| R:R | Breakeven Win Rate | Implication |
|---|---|---|
| 1:1 | 50% | Need to win more than half your trades |
| 1:1.5 | 40% | Can lose 6 out of 10 trades and still profit |
| 1:2 | 33% | Only need to win 1 in 3 trades |
| 1:3 | 25% | High reward but setups are rare |
A minimum R:R of 1:1.5 is a good starting target. It means even with a mediocre 50% win rate, you're profitable. As you develop your edge, you can optimize — but never drop below 1:1.
You have a $5,000 account and want to risk 1%. Your stop loss is 100 pips. What lot size should you use?