Home/Glossary/Position sizing
Home/Glossary/Position sizing
Risk management

Position sizing

By Jarosław Wasiński • Published: • Updated:
Choosing the number of units or contracts for a trade using a risk budget, exit assumptions, contract value and costs. In a simple linear model, size equals planned cash risk divided by assumed loss per unit. Minimum size, rounding, currency conversion and margin must also be checked; gaps or slippage can make the actual loss larger.
Example. For illustration, a $50 risk budget, a 25-pip stop and a $10 pip value per standard lot imply 50 ÷ (25 × 10) = 0.20 lots before costs. With these assumptions, doubling the stop distance halves the position size.

Common mistake: sizing from available margin

Margin only indicates the collateral requirement. It does not tell you how much a stop-out, stop-loss or price gap could cost. Include commissions, spread and an appropriate execution allowance in the risk calculation.

Apply it

Use the position-size calculator with your own risk limit, instrument specification and account currency. Respect the broker’s minimum size and lot step; rounding up increases risk.

Rounding with costs

Assume a USD 50 budget, a 25-pip price-loss distance and USD 10 per pip per lot, plus USD 7 round-trip commission per lot not already included. Size is 50/(250+7) ≈ 0.19455 lot. With a 0.01-lot step, 0.19 gives USD 48.83 of modelled loss; 0.20 gives USD 51.40. This excludes worse execution and other charges.

Infographic: mechanism and example

Position sizing
Educational diagram; model data, conventions and limitations are stated in the graphic.
Open the full-size graphic

FAQ

What if minimum volume exceeds my risk budget?

The planned trade does not fit the budget under those assumptions. Rounding up is not a neutral adjustment.

Does a wider stop always mean greater cash risk?

Not if size is reduced appropriately. The budget, costs, minimums and assumed execution must be evaluated together.

← Back to the full glossary

Put this term into practice

Use your broker’s contract specifications and current exchange rates. Calculators illustrate assumptions; they do not guarantee execution prices or returns.

Jarosław Wasiński

Editor-in-chief, ForexMechanics.com • Macro & FX analyst

Independent analyst and practitioner with over 20 years of experience in financial markets. Actively involved in Forex since 2007, with a focus on fundamental analysis, OTC market structure, and disciplined capital risk management.

  • Creator and editor-in-chief of MyBank.pl, providing reliable financial education since 2004.
  • Author of hundreds of in-depth market commentaries, structural analyses, and educational materials for traders and investors.
  • Advocate for market transparency, promoting education grounded in hard data and institutional reports (BIS, ESMA, CFTC).

All content is educational and informational only – it does not constitute investment advice or a recommendation. Remember: leveraged trading (Forex/CFD) carries a high risk of rapid capital loss.