Position sizing: size the trade from the risk, never the other way round

The formula

Three inputs and one division. Money at risk is your balance times the fraction you accept losing on one trade. Stop distance is the price distance from entry to your initial stop. Point value is what one unit of the instrument gains or loses when price moves one unit — 1 for most spot instruments, a contract multiplier for futures. Then:

units = (balance × risk%) ÷ (stop distance × point value)
lots  = units ÷ units-per-lot   (100,000 for a standard FX lot; 100 for gold at most brokers)

Worked examples

money at risk = 10,000 × 1% = $100
stop distance = 25 pips = 0.0025
units = 100 ÷ 0.0025 = 40,000 units = 0.40 standard lots
check: 40,000 × 0.0025 = $100 ✓

money at risk = 5,000 × 0.5% = $25
units = 25 ÷ 4.00 = 6.25 oz
lots (100 oz per lot) = 0.0625 → 0.06 lots at most brokers' step
at 0.06 lots the actual risk is 6 × 4.00 = $24 ✓

money at risk = $200
units = 200 ÷ (40 × 1) = 5 units

The position size calculator does exactly this arithmetic and lets you set the point value and units-per-lot for whatever you trade.

Fixed fraction, not fixed lots

Trading the same lot size regardless of balance means your risk per trade rises as you lose — the worst possible direction. Risking a fixed fraction of the current balance does the opposite: after a losing streak each bet is smaller, so the account shrinks geometrically rather than linearly, and it takes an implausibly long run of losses to do serious damage. After a winning streak bets grow, so gains compound. The fraction most discretionary traders settle on is between 0.5% and 1%; some use 2%, few survive long at more.

Where the stop goes decides the size, not vice versa

The stop belongs at the price where your idea is wrong — beyond the swing, below the zone, past the level. If the stop that makes sense is 60 pips away and you want to risk $100, you trade 0.17 lots. If that size feels too small, the answer is not to tighten the stop into noise; it is to accept the size, or skip the trade. Tightening a stop to fit a desired size is how a good idea gets stopped out before it has a chance to be right.

Sizing under prop-firm rules

Prop-firm challenges add a second constraint: a daily loss limit, usually 4–5% of the starting balance, and a maximum loss of 8–12%. Sizing has to respect both. A useful rule: your risk per trade times the number of losing trades you would plausibly take on a bad day should stay comfortably under the daily limit. Risking 1% with a 5% daily limit means five straight losers end your day — which is fine only if five straight losers is rare for you. Many challenge traders drop to 0.5%, or cap the number of trades per day.

The prop-firm drawdown calculator shows exactly how much room the rules leave you today given what you have already made or lost, and the guide on prop-firm rules covers the traps in how those limits are measured.

Sizing mistakes a journal will catch

• Risk creeping up after wins ("I'm hot") or after losses ("I need to make it back"). Both show up as a rising risk-per-trade series in a journal that records risk.
• A wrong contract size on a new instrument — usually discovered as a loss ten times larger than planned. Check the first trade on any new market at minimum size.
• Ignoring spread on tight stops. On a 5-pip stop, a 1-pip spread is 20% of your risk before the trade starts.
• Sizing off the account balance while a large position is open. Use free margin and current equity, or the next stop-out costs more than 1R.