Position Sizing Formula: The Calculator Pros Use for Every Trade
Position sizing is the most important calculation in trading. It determines what % of your account you'd lose on a stop-out — and the math is identical for every account size, market, and strategy.
If you can do this math, you survive long enough to learn everything else. Skip it, and your strategy never matters.
The core formula
Position size = (Account × Risk %) ÷ (Stop distance × Value per unit)
That's it. The whole framework reduces to four inputs:
- Account — your equity in account currency
- Risk % — how much you're willing to lose on THIS trade (1% is standard)
- Stop distance — pips, points, or $ from entry to stop
- Value per unit — what 1 pip / point / $ is worth at the smallest tradable lot
Worked examples
Example 1: Forex (EUR/USD)
- Account: $10,000 (USD)
- Risk: 1% = $100
- Stop: 25 pips
- Pip value at 1 mini-lot: $1
Position = $100 ÷ (25 × $1) = 4 mini-lots
If stopped out at -25 pips: 4 × $1 × 25 = $100 = exactly 1% loss.
Example 2: US Stocks (AAPL)
- Account: $25,000
- Risk: 0.5% = $125
- Entry: $185, Stop: $180 → $5 stop distance per share
- Value per unit: $1/share
Position = $125 ÷ (5 × $1) = 25 shares
Example 3: Crypto (BTC/USDT)
- Account: $5,000
- Risk: 2% = $100 (crypto is volatile → slightly higher tolerance OK if you cap it)
- Entry: $65,000, Stop: $63,500 → $1,500 stop distance per BTC
- Value per unit: $1/BTC
Position = $100 ÷ (1500 × $1) = 0.0667 BTC
Excel / Google Sheets formula
Paste this into A1 cell, populate B1-E1:
=B1*C1/(D1*E1)
| Cell | Value | | --- | --- | | B1 | Account ($) | | C1 | Risk % (e.g. 0.01) | | D1 | Stop distance (pips/points/$) | | E1 | Pip / unit value |
Output: position size in lots / shares / units.
Risk per trade — what's the right number?
| Trader type | Risk per trade | | --- | --- | | Survival mode (drawdown recovery) | 0.25%–0.5% | | Standard | 1% | | High-conviction setups | 1.5%–2% | | Demo / sim only | 5% (DO NOT use live) |
The 1% rule isn't sacred, but never exceed 2% on a single trade. A 5-trade losing streak at 2% = 10% drawdown. At 5%, you're down 25% and the math gets ugly fast.
The R-based framework
Once sizing is consistent, express everything in R units:
- 1R = your risk per trade in dollars
- Stop = 1R
- TP1 = 1R, TP2 = 2R, runner = 3R+
This normalises every market and timeframe to one number. A pro thinks "I'm up 2.4R this week" — not "I made $312 on EUR/USD and lost $87 on AAPL".
Common sizing mistakes
- Sizing by lot count — "I always trade 0.1 lots" doesn't account for stop distance or pair volatility
- Sizing on emotion — bigger size after losses (revenge), bigger after wins (overconfidence)
- Ignoring spread/commission — eats your edge silently
- Forgetting account currency conversion — pip value on GBP/JPY is different for a EUR-denominated account
The 30-second pre-trade check
Before every entry, write down:
- Account: ___
- Risk %: ___
- Stop distance: ___ pips/points
- Calculated position size: ___
- Dollar loss if stopped: ___ (must equal account × risk %)
If you can't fill all five, don't enter the trade.
Next steps
- Risk Management Guide — the broader framework
- Forex Lot Sizes Explained
- Forex Leverage and Margin