How to Calculate Position Size in Forex (Step by Step)

Most new traders choose a lot size by instinct: 1 lot because it's round, or 0.5 because it "feels safe". The problem is that the same lot size can mean a tiny risk on one trade and a huge risk on the next, depending on where the stop-loss sits. Position sizing fixes that by making your risk consistent.

The three inputs

1. Account balance. The money in your trading account.
2. Risk per trade. The percentage of your balance you're prepared to lose if the stop-loss is hit. Many traders use 0.5% to 2%.
3. Stop-loss distance. How many pips from your entry to your stop.

You also need the pip value of the instrument per lot, which you can find with our pip value calculator.

The formula

Lots = (balance × risk %) ÷ (stop-loss pips × pip value per lot)

Worked example: EUR/USD

• Balance: $5,000
• Risk: 1% = $50
• Stop-loss: 20 pips
• Pip value: $10 per lot

A 20-pip stop on one lot risks 20 × $10 = $200. You only want to risk $50, so: $50 ÷ $200 = 0.25 lots.

Worked example: USD/JPY

• Balance: $5,000, risk 1% = $50
• Stop-loss: 40 pips
• USD/JPY at 150.00, so pip value ≈ $6.67 per lot

40 × $6.67 = $266.80 per lot. $50 ÷ $266.80 = 0.18 lots (rounded down).

Why risk a fixed percentage?

Risking a fixed percentage means your position size shrinks automatically during a losing streak and grows as your account grows. At 1% risk, ten losses in a row cost you roughly 10% of the account, painful but survivable. At 10% risk, the same streak would leave you with about a third of your money.

Common mistakes

• Moving the stop to fit the size. Place the stop where your trade idea is proven wrong, then calculate size. Never the other way round.
• Ignoring costs. Spread and commission add to your real loss, especially on short-term trades.
• Forgetting gaps. Over weekends and major news, prices can jump past your stop. Read our guide to stop-loss orders.
• Stacking correlated trades. Three 1% trades on EUR/USD, GBP/USD and AUD/USD can behave like one 3% bet on the US dollar.
• Rounding up. If the formula says 0.27 lots and your platform only allows 0.1 steps, round down to 0.2.

Check your margin too

Position size controls how much you can lose; margin controls whether you can open the trade at all. After sizing, check the required margin with our margin calculator and keep plenty of free margin as a buffer.

Do it in seconds

Our free position size calculator runs this formula for you. TradeLocker also has a built-in risk calculator, so you can set risk in money or percent directly on the order ticket.

CFDs are leveraged products and you can lose your money. This article is for education only and is not investment advice.